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Posted by D. Stussy on June 4, 2008, 10:31 pm
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> Here's a variation on a question that's come up several times before
> - the mortgage interest deduction.
>
> I was consulted by someone whose relative had just died owning a home
> that was kept in a living trust. The beneficiaries want to keep the
> home instead of selling it, so plan to keep the trust (now
> irrevocable) for the purpose of maintaining the current mortgage in
> place. The beneficiaries will move into the property and keep up the
> mortgage payments.
>
> The question is, can they deduct the mortgage interest?
Yes.
> To me this is not as simple as merely say they aren't on the deed or
> on the mortgage so they can't. They are now the technical owners,
> though the property still remains in the name of the trust.
They are still responsible as successors, even if ownership is indirect.
Remember that these trusts are usually grantor trusts (when the grantor
lives) and as such are disregarded entities. After death, the estate first
gets the deduction but it may distribute the right or simply flow it
through. As a flow-through item, the beneficiaries CLEARLY get the
deduction (in their respective shares). As successors, they may assume the
debt, and therefore, they're responsible - and get the deduction.
> In one situation where an executor moved into her mother's house and
> moved out after the probate was terminated, more than two years
> later, my research indicated that she was entitled to the §121
> exemption.
Not the same question. The executor need not be a beneficiary nor a
beneficiary act as executor.
> Then there's the issue of a partnership. What happens if a
> partnership buys a house for non-business purposes, and the partners
> live there. The title and mortgage are in the name of the
> partnership - can the partners deduct the mortgage interest? If so,
> why not trust beneficiaries in the same situation?
Partnerships are legally different than estates, trusts, or successors.
It's not the same question.
> This seems to me to be similar to the situation of some condominiums,
> where owners get an ownership interest in the entire building or
> complex, and are entitled to sole usage of a particular unit based on
> contractual rights. In those cases the owners get to deduct their
> mortgage interest.
>
> Am I off base?
You have drifted off base.
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