Tax Deductions on a Property Taken 'Subject To'

Tax, SDIRAs & Cost Segregation
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Tax Deductions on a Property Taken 'Subject To'

Josh Stroup
Placentia, CA · Member since 2013 · 13 posts · 0 votes

Hi Everybody,

I've looked into this online, and found a wide range of opinion, so I thought I would throw this out to the community...

When taking over an existing mortgage, can you deduct the mortgage interest on your taxes? To better frame the question - I was thinking of structuring a deal by using a land trust. However, without notifying the bank, the mortgage would still be in the seller's name. Could I pull this off?

Thanks in advance for your help.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    12y
    Originally posted by @Josh Stroup:
    Hi Everybody,

    I've looked into this online, and found a wide range of opinion, so I thought I would throw this out to the community...

    When taking over an existing mortgage, can you deduct the mortgage interest on your taxes? To better frame the question - I was thinking of structuring a deal by using a land trust. However, without notifying the bank, the mortgage would still be in the seller's name. Could I pull this off?

    Thanks in advance for your help.

    Josh,

    This has been discussed numerous times. Yes, you can. Once you have an interest in the property with a contract you are eligible to deduct any interest that you actually pay.

    [email protected]224-381-2660
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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    12y

    Yes, you have a contract interest in the property. That allows you to deduct the interest.

    [email protected]224-381-2660
    0Reply
  • Josh Stroup
    OP
    Placentia, CA · Member since 2013 · 13 posts · 0 votes
    12y

    Thank you, Steven.

    Following up on this, is it possible that the mortgage holder (the seller) would try to claim taxes as well? Would the bank not send him the form to use when filing his/her taxes? If I'm right about that, I'd be interested to know how I should best handle that situation.

    If someone can provide feedback, I'd appreciate it. Thanks so much.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    12y
    Originally posted by @Josh Stroup:
    Thank you, Steven.

    Following up on this, is it possible that the mortgage holder (the seller) would try to claim taxes as well? Would the bank not send him the form to use when filing his/her taxes? If I'm right about that, I'd be interested to know how I should best handle that situation.

    If someone can provide feedback, I'd appreciate it. Thanks so much.

    Yes, the bank would send the 1098 to him. You need to have that included in your agreement that he is to provide that to you. He would not be eligible to deduct it anyway due to the fact that he is not actually paying it.

    Worst case, you should have required an amortization schedule for the loan assumed.

    [email protected]224-381-2660
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