During this time of year, when a person is going through his/her tax records and preparing a tax return, and going through a the list of possible itemized deduction, and of course the major one is the mortgage interest.  It is the second biggest tax write-off, according to President Obama’s federal budget for fiscal year ending on October 31, 2016, valued at just under $70 billion.  Most cases, if a person pays a mortgage on his/her primary residence (and his/her rental property), he/she has proper standing claim the mortgage interest.  The difficulty runs, if one person owns the property, but another pays the mortgage, who can claim the mortgage interest?

            In recent federal Tax Court Case (Qui Van Phan vs. CIR, TC Summ Op. 2015-1, dated January 12, 2015), where Mr. Phan took up residence of his mother’s three-acre in 2010, due to a divorce that his mother was going through.  Mr. Phan oral agreed to pay the mortgage (as well as the real estate taxes), to increase his share of equity of the premises, and Mr.  Phan was not on title, as the legal owner of the premises at the time.  Of course Mr. Phan claimed the mortgage interest on his 2010 tax return, and the IRS audited and denied this deduction, and the Court ruled that:

. . .even if a taxpayer is not directly liable [Emphasis Added] on a bond or note secured by a mortgage, the taxpayer may nevertheless deduct the mortgage interest paid if he or she is the legal or equitable owner [Emphasis Added] of the property subject to the mortgage.

An the Tax Court went further that one has to look at state law, to see how one establishes as an “equitable owner”, and according to California law, one could be an equitable owner if a person can establish by clear and convincing evidence that an “ agreement or understanding between the parties evidencing an intent contrary to that which is reflected in the deed.

So if you are in a situation, just as Mr. Phan, and you think you can establish yourself as an “equitable owner” on a primary residence, but you are not on title, please contact us at [email protected] and we can look into see if you have proper standing and can claim the mortgage interest.