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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120809  
Subject: Re: Shacking up, filing separately, please help Date: 11/12/2003 4:32 AM
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in the case i know of, the adult son is supporting his parents and claims them as dependents on his return. however, since they also have a home equity balance outstanding, and the mortgage interest deduction is useless to them, the home equity loan was reissued in the names of the son and the parents, even though the parents are the only ones on the house title.

the son makes the interest payments on the loan, and does not worry about the title knowing that one day the house will pass to him in any case.


I think I answered this too quickly earlier. On reflection, I think the taxpayer must be an owner of the property, as well as liable for the debt, in order to deduct the interest.

Section 163(h) allows a deduction for mortgage interest if the mortgage is secured by a "qualified residence." A deduction is allowed for acquisition indebtedness or home equity loan indebtedness. Clearly if the taxpayer doesn't hold title we're not talking about acquisition indebtedness.

Nowhere does section 163 come right out and say that the taxpayer must own the property, but it does say that the taxpayer must use it as a residence. I've also looked at the regs, which don't offer any more help. However I can't find any sane way of reading the code or regs that doesn't assume the taxpayer owns the property. I've not looked at any case law.

Any thoughts, anyone?

Phil
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