Discussion:Mortgage Interest - Equitable Ownership
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Discussion Forum Index --> Tax Questions --> Mortgage Interest - Equitable Ownership
| 20 January 2006 | |
| I know there has been previous discussion on this topic. Nevertheless, I do not recall any reference to Code Section 7463(b). This in effect says that disputes less than $50,000 in which the tax court ruled in favor of the Petitioner can not be used as precedent.
Now in the Saffet case in which the court ruled in favor of the Petitioner based upon equitable and beneficial ownership allowing him to keep the mortgage interest deduction, according to 7463(b) this case can not be used as precedent. My question is: I have a similar situation. Do I use for disclosure with the tax return the items in the Saffet case without citing the case per se. All of the facts (pertinent to equitable ownership) in Saffet are similar to mine. Thanks. | |
| 20 January 2006 | |
| Disclosure is not necessary if the position is based on Treasury Regulations that have not been superseded. In this case, you are obviously relying on Treasury Regulation 1.163-1(b); consequently, I am not sure that disclosure is necessary. | |
| 21 January 2006 | |
| Riley: Thanks for mentioning 1.163-1(b). Linking to it from this site sure has nothing to do with the subject - unless I clicked wrong section. Found it elsewhere. | |
| 21 January 2006 | |
| Still ambivalent about doing this in view of 9th circuit interpretation of 1.163-1(b). Court said IRC 163(a) permits interest deduction only on taxpayer's own indebtedness and Reg 1.163-1(b) does nothing more than permit the deduction of interest when taxpayer-borrower is not personally liable. For example, taxpayer buys land and pays down payment and has a non-recourse note for the balance secured by the land.
My case is: mother buys house for son and mother only is on the mortgage. Son lives in house, makes mortgage payments to lender, pays taxes, utilities, repairs, etc and establishes equitable ownership. My inclination is to give interest deduction the son in view of Saffet/Uslu prevailing. Anyone here actually done this? Thanks. | |
| 21 January 2006 | |
| Think I answered my own question. Saffet/Uslu much later than Golder and a few others in which Petitioners failed. Sorry for taking up space on this. | |
| 22 January 2006 | |
| Your analysis of the Ninth Circuit’s decision in Golder is correct. A gurantor may not claim an interest deduction for payments made on another taxpayer’s mortgage since the guarantor is only secondarily liable.
However, the Golder court explained that a taxpayer who purchases property using debt for which he is not personally liable is entitled to use Regulation § 1.163-1(b). The Golder court cited the McDermott case in reasoning that interest on non-recourse debt should be allowed if the taxpayer is the owner of the underlying property which was purchased by assuming such debt. Using the common definition of non-recourse debt, your clients took the property subject to the underlying mortgage, effectively (but not formally) assuming the debt. I see no conflict between the Golder decision and the regulation. | |
| 10 November 2006 | |
| Riley, you said something that is VERY important to a situation we are facing. Can you point to any case law or regulations that confirm that taking a property subject to an underlying mortgage is "effectively assuming the debt" even though there was no formal assumption? Thank you so much! | |
| 10 November 2006 | |
| Equitable or Beneficial Ownership | |
| November 10, 2006 | |
| Note: Solomon actually created the page that he linked to above. Great work Solomon! | |
| 24 March 2007 | |
| I have a very similar case as the one cited above. Son lives in house that is in father's name. I appreciate all of the work that Solomon did in laying out the answer to my main question. My second question is, does the father need to claim the payments as rental income? | |
| 24 March 2007 | |
| Sean, if the son is deemed an owner, then no, he is making the payments (princ, int, tax, ins) as an owner, and not as rental to dad. Kevinh5 | |
Taxconsultant (talk|edits) said: | 29 December 2007 |
| I have read the cases and my question is fairly broad. In light of Circular 230, is anyone other than myself concerned about recommending a client take the deductions discussed on this board? | |
| 29 December 2007 | |
| "(1) More likely than not . A practitioner is considered to have a reasonable belief that the tax treatment of a position is more likely than not the proper tax treatment if the practitioner analyzes the pertinent facts and authorities, and based on that analysis reasonably concludes, in good faith, that there is a greater than fifty-percent likelihood that the tax treatment will be upheld if the IRS challenges it. The authorities described in 26 CFR 1.6662–4(d)(3)(iii), or any successor provision, of the substantial understatement penalty regulations may be taken into account for purposes of this analysis."
From Prop. Reg. 138637-07. Note that court cases are included in the types of authority in Reg. 1.6662-4(d)(3)(iii). | |
