I came across this today in passing while working on a tax case.

Most homeowners deduct home mortgage interest on Schedule A of their 1040. Actually, this is usually a taxpayer’s largest deduction. Well, what if the taxpayer is not liable for the mortgage can taxpayer still take the deduction?

For example, taxpayer’s parents transferred title of a home to taxpayer. The mortgage remained the obligation of parents. Taxpayer does not refinance. Taxpayer pays mortgage. May taxpayer deduct the interest paid on schedule A? I have to admit that the IRS is pretty generous on this one. The IRS permits taxpayer to take the deduction on schedule A. Thank you IRS!

What follows is the background and legal support.

1.163-1(b), Income Tax Regs., provides: “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”

However, “title” to the real estate is required. Real estate title can include legal, equitable, and beneficial title. Hynes v. Commissioner, 74 T.C. 1266, 1288 (1980); Song v. Commissioner, T.C. Memo. 1995-446; Bonkowski v. Commissioner, T.C. Memo. 1970-340, affd. 458 F.2d 709 (7th Cir. 1972). This is where it can get complicated and you would need to seek a tax pro, such as myself, on this point.

I will point out that the 1098 will not be in your name but the IRS has spoken: deduct, deduct, deduct!