Today TaxMama hears from Sean in North Carolina. “As I understand it you must be an owner and be liable to claim the home mortgage interest and property tax as deductions on schedule A. Now I hear you can be an equitable owner whose name is not on the mortgage and also whose name is not on the deed. Can you explain?”
Good question. And one that affects many people.
In essence, an equitable owner is the real owner of the house, despite the fact that tile and the loan may be in someone else’s name. This is usually the case when someone doesn’t have enough credit to qualify for their own loan. A close relative or friend qualifies on their behalf.
But the person or couple who have inadequate credit are the ones who live in the home and make all the payments and take care of all the upkeep. For all intents and purposes, they are the real owners of the home. They just don’t have the title to prove it.
Case after case in Tax Court supports the taxpayer in this situation. Here is an article in the Journal of Accountancy that explains the concept more fully. They are discussing a Tax Court case where the taxpayer won.
But there’s no need to drag this to Tax Court. Just get the proper paperwork done to prove your claim. You need to have title documents drawn up in the real owners’ names. And you need to have a loan document drawn up between the buyer on title and on the loan, and the real borrowers.
If you didn’t do that in the beginning, you can have your attorney draw up memorialized contracts. That means you don’t back date documents illegally. You produce contracts that explain that this was the intention at the date of the purchase, and use the current dates for the signatures.
And remember, you can find answers to all kinds of questions about equitable ownership and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- Journal of Accountancy Article :: Equitable Owner Equals Deduction