How can I use my daughter’s Form 1098 to get a tax deduction, if she died in February and I inherited her house and paid her mortgage from February on?

[rw-schrader]

If the mortgage interest shown on the form 1098 for the year is $10,000, how can I get credit for all of it if I didn't pay for all of it? I think my daughter paid the January mortgage bill (though I gave her the money, but that would be hard to prove to the IRS)

[KrisD]

You could only claim the interest paid if you are on the loan. 

"  if you are the primary borrower, you are legally obligated to pay the debt and you actually make the payments. If you are married and both you and your spouse sign for the loan, then both of you are primary borrowers. If you pay your son's or daughter's mortgage to help them out, however, you cannot deduct the interest unless you co-signed the loan."

https://turbotax.intuit.com/tax-tips/home-ownership/deducting-mortgage-interest-faqs/L4a9KF9mI

[rw-schrader]

Dear friend,

Thank you so much for your response, which I am very late responding to because I had an awful fall down our stairs. I am home from the hospital now though and have recovered significantly.

You said, "You could only claim the interest paid if you are on the loan".

I wanted to let you know that I also asked this question of an online tax professional, who said  "Treas. Reg. § 1.163-1(b) permits a deduction for interest paid on a mortgage when a taxpayer is the legal or equitable owner of the property, even though the taxpayer is not directly liable for the mortgage." 

Since I inherited the property from my daughter and paid the mortgage for over a year until the house was finally sold, it seems I am able to claim the mortgage interest. 

My question was poorly worded, which probably explains your response, which focused on the second part of my question, having to do with the fact that I also wondered whether I could somehow get credit for the January payment which I loaned to my daughter. 

I'll clarify this comment if you wish.  Thank you again for your response.

Bob Schrader

[Critter]

You can deduct the interest and the taxes even if your name is not on the 1098 ....  HOWEVER it could be limited on the Sch A so you may not get all you hope for ... and I am surprised the bank let you keep paying the mortgage without refinancing it. 

[rw-schrader]

Sorry to be such a pain, but I am not sure what you mean by this: HOWEVER it could be limited on the Sch A so you may not get all you hope for.

[macuser_22]

@rw-schrader 

1) The previous answer that you must be on the loan is not correct if you are either on the  loan or own the property which you do if you inherited it.   You have an obligation to pay the mortgage whether your name in on the loan or not.

2) You can only deduct what you actually pay.

3) Mortgage interest is a Schedule A itemized deduction.

For 2018 many taxpayers that itemized in the past will find that they can no longer itemize because the standard deduction has doubled so all of their itemized deduction s no longer exceed the standard deduction.

Only if all itemized deductions exceed the standard deduction will it be of benefit.

Not all itemized deductions count the full amount. Medical expenses are reduced by 7.5% of AGI so if your AGI is $30,000, for example, then only medical expenses more than $2,250 would be an itemized deduction.

The 2018 tax law also caps the total of Sales tax OR State and local income tax, Property (real estate and personal property) taxes at $10,000.

Mortgage insurance premiums. The itemized deduction for mortgage insurance premiums expired on December 31, 2017.

Mortgage interest on loans after Dec 16, 2017 may be limited.

The Mortgage must be secured by the property to qualify.

Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.

You can check the actual amount of itemized deductions by using the Search Topics for "itemized deductions, choosing" (under "My Account, Tools" in the online versions). Click on "Change my deduction". That will display the actual amount of itemized deductions vs. the standard deduction. (Be sure to uncheck "Change my deduction" after checking it so you do not lock in the wrong deduction.

2018 standard deductions

$12,000 Single
$18,000 Head of Household
$24,000 Married Jointly

Add an additional $1,300 for over age 65 or blind
This amount increases to $1,600 if the taxpayer is also unmarried.

[Hal_Al]

An inherited home is treated either as a 2nd home or investment property, depending on how it is used.

The mortgage interest for a 2nd home is deductible on schedule A. As others have indicated, you qualify even though you are not on the mortgage. In the TurboTax  (TT) interview, enter as mortgage not shown on a 1098 (since the 1098 is not in your name).

In the past (2017 and earlier), the carrying costs (e.g. insurance & utilities) of investment property were deductible as investment expenses, but  subject to being an misc. itemized deduction  subject to the 2% of AGI threshold.  Those deductions were eliminated starting in tax year 2018.

Real estate (property) tax may be deducted on schedule  A, under taxes, without regard to the 2% rule.. But are subject to the new $10,000 SALT cap.

But, taxpayers can elect to capitalize (add it to your cost basis)  the carrying costs of nonproductive investment real property before it's sale (Regs. Sec. 1.266-1(b)(1)).  The election is made with the tax return by its due date, including extension, by attaching a statement. You cannot wait until you sell the property, but must make that election each year. Attach the statement to the return and write “Filed pursuant to section 301.9100-2” on the statement. 

Mortgage interest, for investment property, is only deductible to the extent of other investment income (not subject to the 2% of AGI rule),  but can be capitalized. (http://www.nolo.com/legal-encyclopedia/tax-deductions-vacant-lands.html)

Note: tax wise, most people come out better treating the property as investment property. Because the cost basis is "stepped up", inherited property, sold shortly after being inherited, usually results in  a capital loss.  The capital loss on the sale of investment property is deductible. The loss on the sale on a 2nd home is not deductible.