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Who Can Deduct Interest on a Mortgage?

by Loella Haskew, CPA

My boyfriend and I just bought a house together, but since my credit was not terrific, we only had him down as the owner. But I am listed as a joint tenant, and I pay most of the mortgage payments. Can I deduct the interest on the loan or does my boyfriend do that? I make more money than he does, so would I get a greater tax advantage if I deduct the interest?

If you are listed as a joint tenant, then you are an owner. I’m sure the transfer of ownership was accomplished with a quitclaim deed after your boyfriend originally purchased the property in his name. I assume that you and your boyfriend made equal portions of the down payment and are both paying at least a portion of the mortgage, so there are minimal gift tax issues.

Regarding deduction of the mortgage interest, we must first determine whether the interest you pay qualifies as mortgage interest. The mortgage must be secured by the property. The property must be your principal or second residence. Finally, the mortgage must be secured by a perfected lien. That means that the lender has to be recorded on the county’s books as having a lien on the property.

Further, to qualify to deduct any interest, the person who pays the interest must be personally liable for the debt. The person, in addition, can only deduct interest that he or she has actually paid. By that, I mean that if a father pays the interest on a daughter’s mortgage, the father has no personal liability so he may not deduct the interest. The daughter did not pay the interest, so she may not deduct the interest either.

I believe that you have that liability because you are a joint owner of the property and your ownership of the property is subject to the mortgage. You, therefore, should be able to deduct the mortgage interest that you pay. You would deduct only the amount you actually pay. Likewise, your boyfriend should deduct that part of the interest he pays.

Since you have more income than your boyfriend does, you likely would get a greater tax saving than he would. The result might be negligible if you were in the same marginal tax bracket or there were some other factors in your personal return that would affect the comparison. The only real way to tell is to do both returns and compare the outcome.

One problem is that your boyfriend, who I assume is the only person on the mortgage, will get the 1098 from the mortgage company. The IRS will expect the interest to be deducted on his return and will question you if you deduct the interest you paid on your return. To avoid this situation, your boyfriend should include information in his tax return that you have paid part of the mortgage and that you will be taking the deduction.

Loella Haskew is a Walnut Creek, Calif., CPA with the firm of Buckley Patchen Riemann & Hall. You can reach her at (925) 937-2727.

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