Who Gets the Tax Credit on “Subject To” Deals?
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Marc Cormier
Real Estate Agent from Rockville, MD
posted 5 months ago
Tax time is quickly approaching, and that means an uptick in the questions about who is entitled to get the tax credit for "Subject To" deals. As David M. Hasson CPA, PFS of Seckendorf Hasson & Reilly CPA's, LLC noted, his office receives a number of questions about this, especially as the year's tax deadline approaches.
"Subject To" deals are those that an investor acquired as the result of taking over the payments on the existing mortgage. Because of this, the deed to the property transfers to the investor while the original mortgage remains in the name(s) of the original seller(s). This can lead to confusion with many lenders stating that the sellers retain the right to these tax credits.
"Even though it's a concept that seems to lend itself to confusion, "Subject To" deals actually have a clear-cut answer when it comes to deciding who can take the tax credit," Hasson noted. The Internal Revenue Service (IRS) is the entity that makes the rules concerning who gets tax credits. The agency's stance on this matter is that whoever actually makes the mortgage payments on the loan has the right to deduct the interest.
An investor who made payments on a mortgage loan only has to prove to the IRS that they did so. They are then entitled to take the tax deduction. Showing the IRS the canceled checks that indicate that the mortgage was paid are all that is typically required. In nearly all cases, such investors should also be able to claim depreciation as well.
Rental Property Tax Breaks
A primary reason that investors are able to build wealth over the long term is because of the favorable tax breaks that come from having rental property. A good accountant who is well-versed in the tax write-offs that benefit investors is crucial throughout the year as well as during tax time. A knowledgeable accountant is necessary to ensure that all mortgage interest deductions, operating expenses, real estate taxes and mortgage points amortization that are allowed by full are taken advantage of to their fullest extent. Following this strategy helps the savvy investor minimize the taxes paid while continuing to build wealth.
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