Discussion:Rental property claim
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Discussion Forum Index --> Tax Questions --> Rental property claim
| 10 August 2006 | |
| I just got a client who purchased two rental properties in 2003 and 2004 under his sister's name. But he made the mortgage and property tax payments and collected the rent and claimed the rentals on his tax returns. He got audited and the IRS did not allow the rental loss on his tax returns for both years. Is the IRS right?
Any help would be appreciated. | |
| 11 August 2006 | |
| The loss should be claimed by the equitable owner who may or may not be the legal title holder. | |
| 11 August 2006 | |
| Riley,
Is this means that even though the loan is not under his name nor the title he can still claim the rentals in his tax returns? What IRS code section would that be under? Thank you so much for your help. | |
| 11 August 2006 | |
| Try Reg. 1.163-1(b) | |
| 12 August 2006 | |
| Solomon,
I couldn't find Reg. 1.163-1(b) Are you sure this is the right reg? Thanks | |
| 13 August 2006 | |
| Yes - just click on the link I put in post - then look in (b). | |
Truthseeker (talk|edits) said: | 13 August 2006 |
| Solomon- would Reg. 1.163(b) apply to a TS who parents bought the property in which the TP resides, and pays mortgage and RE taxes. TS credit didnot qualify for loan, parents purchased under their names. | |
| 13 August 2006 | |
| See Tax Court Saffet/Uslu vs Commissioner TC Memo 1997-551. There are other cases as well. In addition, do a search on the board as there have been numerous discussions on this topic. | |
| 13 August 2006 | |
| Uslu v. Commissioner | |
| 13 August 2006 | |
| Jordan vs Treasury See paragraphs 9 & 10. This was on June 27,2006. | |
| 14 August 2006 | |
| I understand that there should be either legal or equitable ownership in order to deduct the mortgage and property taxes. Is this also true for investment properties (rentals)?
How about when the property is sold? Does the equitable owner who is not on title or the mortgage need to report the sale of the property on his tax return? Any advice would be appreciated. | |
| 16 August 2006 | |
| Maga:
The IRS has a three step process to determine eligibility for a taxpayer taking a mortgage interest expense deduction. There are several areas of the tax code, regardless of court case outcome, where this applies according to IRS internal procedures. Part I. The taxpayer must be legally liable for the debt. You cannot deduct payments made for someone else if you are not legally liable to make them. (IRS consider it a gift). The loan has to be repaid. There has to be a true debtor creditor relationship. Part II. The debt must be secured by the property. Part III. (only applies to principle residences)The Qualified home test. These steps have been outlined in IRS publications 535 and 936 for more than 30 years and thats why they denied the claim. Good luck on tring to get that overturned without going to court. | |
| 10 November 2006 | |
| So, what about a situation where an investment property is purchased subject to an existing mortgage (with no formal assumption carried out between the buyer and the lender)? Is mortgage interest deductable? I know many people who have been deducting interest in this fashion for years with the blessing of their CPA but this discussion begs the question.
Also, can anyone point to any revenue rulings or case law that addresses whether or not taking a property subject to an existing mortgage (again, no formal assumption) is considered lawful consideration for the property? (I am aware of a pending case where the government is trying to overturn a real estate transaction using the two pronged fraudulent conveyance test. The government may be able prove that the seller was insolvent at the time of the transfer but they are grasping at straws in trying to prove that adequate consideration was not paid by saying that the the balance amount of the first mortgage does not constitute lawful consideration because the buyer took the property subject to that mortgage with no formal assumption (even though the property is secured by that mortgage). Any help would be greatly appreciated. | |
