Home
Tax Articles
Tax FAQ
Introducing Our Firm
Our Services
Real Estate Taxletter
Need Help?
Other Websites
Site Map

Find us on Facebook
Follow me on Twitter
Connect on LinkedIn
Connect on Google+

What Qualifies As Mortgage Interest?

February 9, 1999


From:  Bill Gray

I feel there must be some implications of the following, but I am not sure how to handle it...

In 1990, I purchased my home with the aide of a shared equity partner. he "loaned" me $32,287 which I used (along with other funds) as part of the down payment on my home in California. In August of last year, I finally "bought him out" by repaying the original $32,287 PLUS $15,131 ((FMV - 1st - my initial investment towards down - a re-finance credit)/2).

How and/or where on my tax returns would any/all of this be reported OR even should it be reported??

Can you help and if so THANKS for the HELP!!!!

Answer

How your mortgage arrangement will be treated depends on how it was documented.

If a note was made with interest computed based on the increase in equity, and a lien was recorded that the note was secured by the house, the interest may be deductible as mortgage interest.

If the other party was on the title for the residence, he or she could have a capital gain to report and you might have a basis adjustment.

If the arrangement wasn't recorded, you could have non-deductible interest and the other party could have taxable interest income.

You need someone who knows what they are doing to study your documents.

My telephone number is (408) 918-3161.

Mike Gray

Reply

From:  Bill Gray

WOW! Thanks for a reply and a quick one at that! I honestly did not expect anything back as I have yet to receive a response from this query when posted with others.

Actually, the first is kind of the case. A note was created with interest payable by me monthly on the original investment. Each year I deducted this as "other mortgage interest expense" as my partner had reported this to the IRS (besides, I liked the write-off;-}). So, are you saying that the final $15,131 could be written in as mortgage interest also?

The other party was never on the title. Only had a second place lien.

How much would you charge to take a look at the documentation and provide your "best guess"? I want to do ther right thing, not get audited, and not lose out on what could be rightfully mine. But you understand this don't you... :-}

Thanks again!!

Answer

Hello Bill,

Why don't you call me at (408) 918-3161 and let's discuss this.

Based on what you're telling me, it looks like you should qualify for a mortgage interest deduction.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

If you have an unorthodox mortgage, you may need professional assistance to determine how to treat your interest. This FAQ example explains some of the possibilities.

Home | Real Estate Taxletter | Articles | FAQ | Introducing Michael Gray, CPA | Need Help? | Other Links


Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, California 95128-4512
(408) 918-3162
Fax (408) 998-2766
email: mgray@taxtrimmers.com
© 2016
Subscribe to
Michael Gray, CPA's
Real Estate Tax Letter
!

subscribe
unsubscribe