Discussion:Parents took out mortgage for son
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Discussion Forum Index --> Tax Questions --> Parents took out mortgage for son
| 21 June 2007 | |
| I have a client who had bad credit so his parents took out the mortgage on his home. He has paid every mortgage payment and every expense in the home since it was purchased 8 years ago. The parents even had this put in the deed that the son, who was on the deed as Right of Survivor, was responsible for all payments associated with this house. The son has been taking the mortgage interest and property taxes on his tax return as a deduction for the past 8 years. The son now wants to sell the house. Can capital gains be avoided? | |
| 21 June 2007 | |
| He should qualify for the Section 121 exclusion. He meets the use test, and appears to meet the ownership test due to beneficial ownership. There is an article on beneficial ownership in the FAQ section. | |
| 21 June 2007 | |
| Thanks, I guess that answers my question. The question I have now is when the house is sold, should & could the buyer have the proceeds of the sale, after the mortgage is satisfied, go directly to the son? I'm wondering if anyone has had this same type of transaction come across their desk. | |
| 21 June 2007 | |
| [Beneficial Ownership] thanks solomon (again !)
Scott this link should guide you in the right direction | |
| 21 June 2007 | |
| Thanks, I've looked at that link and it has an example of how the son is able to take the interest expense on his return but it doesn't really mention anything about the sale of the residence and the exclusion from capital gain. I guess I can assume that since the son is the beneficial owner. He would be excluded from the capital gain but I hate to assume. I hope I'm not beating this to death. | |
| 21 June 2007 | |
| Capital gains are reported by the beneficial owner of the property. Similarly, the Sec. 121 exclusion can only be utilized by the beneficial owner of the property. I see no problem with the sales proceeds being disbursed from escrow to the parents. | |
| 22 June 2007 | |
| The parents' name is on the deed. The son is listed on the deed as right of survivorship. | |
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