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Is Mortgage Interest Deduction Assignable in a "Subject To" Transaction? William Miller 03-17-2008
Posted by William Miller on March 17, 2008, 7:55 am
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 x-no-archive: yes

(Please remove all my identifying information before you quote back,
repost, or archive my text)

I'm in Indiana. My wife's parents could not afford to keep their two
mortgaged homes, so last year they deeded them to me and moved out of
State.

The deeds were made out to me as the trustee of two trusts we created
(one for each property) with her folks as the co-beneficiaries. Under
the Garn-St. Germaine Act, this transaction is exempt from triggering
the mortgage's acceleration clause since the title was transferred to
a trust in which the grantors retained their beneficial interest.

Her parents next assigned their entire beneficial interests in the
trust to my wife. Under the Garn-St. Germaine Act, this transaction is
also exempt from the mortgage's acceleration clause since the
beneficial interest was transferred to their daughter, an exempt
person under the act.

The parents' existing mortgage remains in place, in their name, but my
wife and I are making the payments.

Can we claim the mortgage interest deduction?

Again, we actually pay the mortgage and the deeds are in my name,
while the mortgage remains in their name.

If not, is it possible for them to assign their mortgage interest
deduction to me, similar to the assignment of a child exemption using
form 8332?

I do have a signed power of attorney from both of them that
specifically authorizes me to deal with the IRS, Indiana Dept. of
Revenue, mortgage companies, insurance companies, utilities, etc. etc.
at will. It's very comprehensive.

To recap, we in essence "bought" the property subject to existing
financing, we retain their power of attorney, and want to know if
there is any way (directly or via an assignment) that we can claim the
interest deduction on their mortgage which we are paying on our
property?

Thanks for any input. I understand that no attorney-client
relationship is created by my asking this question or by your musing
on this question.

--
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Posted by Phil Marti on March 17, 2008, 10:06 am
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 "William Miller" wrote:

> I'm in Indiana. My wife's parents could not afford to keep their two
> mortgaged homes, so last year they deeded them to me and moved out of
> State.
>
> The deeds were made out to me as the trustee of two trusts we created
> (one for each property) with her folks as the co-beneficiaries.

<avoidance of due on sale clause snipped>

No, they didn't deed them to you. They deeded them to the trust. You are
merely the trustee.

> Her parents next assigned their entire beneficial interests in the
> trust to my wife.

<avoidance of due on sale clause snipped again>

> The parents' existing mortgage remains in place, in their name, but my
> wife and I are making the payments.
>
> Can we claim the mortgage interest deduction?

On the surface it looks like the assignment to your wife eliminated the
grantor trust status of the trust, meaning that deductions would belong to
the trust on its 1041. On the surface it also looks like your in-laws owe
the IRS a gift tax return.

But then, I'm not a lawyer, which is what you needed in the first place.
Pick one who understands the taxation of trusts.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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