Discussion:Parents Paid Mortgage & More

My thinking is as follows:

1. Either Parents or Son and DIL may take deduction for mortgage interest. Parents due to the fact that they are legally obligated to pay mortgage (second home). Son and DIL due to Reg 1.163-1(b).

2. Parents will not be liable for gift taxes due to $12,000 annual exclusion for each person. Father could give $12,000 to each to Son and DIL and Mother could do the same.

3. Parents will not be able to claim Son and DIL as dependents due to but not limited to the following facts: 1) support provided by Parents will not exceed 50% (Son and DIL will have income exceeding $50,000 and 2)Son and DIL's income exceeds limit.

Please let me know if I am considering all factors. All input is welcome.

If the parents made the mortgage payments, then they should take the deduction. It sounds like the property may actually be considered a rental if the son is living there; it doesn't sound like a shared equity if the son never put anything into the property--but maybe I'm missing some of the facts.

If the parents elect to gift split, a 709 should be filed (but no tax due).

Son may not claim a deduction for payments made by an obligor on the mortgage. Better way to handle this would be to have the parents gift the funds each month to the son’s bank account. Only the obligor who made the payments (in this case, the parents) may claim a deduction for interest. My answer would change if the parents were acting as agents for the children.

Using a gift-splitting election, the $12,000 annual exclusion should eliminate the gift tax liability.

Alternatively, can you provide me with the mortgage lender's contact info? I have many clients who own their homes free and clear and I would like to take out mortgages in my name secured by their property, make a couple of payments and then skip to Costa Rica. Sounds like a good plan to me!