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I own a house, and I am paying the mortgage. The loan (and Form 1098) is in the name of a relative because otherwise I could not get the loan. Can I deduct the mortgage interest?
Kevin responds:
As a general rule, to be eligible to deduct mortgage interest, you must be liable for repayment of the mortgage. Because you are not on the mortgage, IRS says you cannot deduct the interest.
However, the Tax Court has allowed a deduction in the case of a couple whose poor credit rating kept them from getting a mortgage on a house they wanted. Relatives bought the home so the couple could live there.
The couple made all the mortgage payments, although the relatives were liable on the loan. The couple also made all repairs and improvements and were the home's only occupants. In the Tax Court's view, the couple were the equitable owners of home and could deduct interest paid on the mortgage. The couple assumed all the benefits and burdens of ownership, and their relatives would have sought restitution from them had they defaulted and the relatives had to pay. If you fit these facts, then you have authority to deduct the mortgage interest.
See the previous question and answer and our archive of questions and answers.
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