tax treatment of mortgage interest for sub-to

[Tyler Pietz]

I am the looking into the tax implications of a subject-to / loan wrap deal on a primary residence from the perspective of the seller/lender; specifically, the treatment of the interest on the existing mortgage post-sale and whether the seller may claim this as investment interest on schedule a / 4952 to offset the interest income from the new loan.

Does anyone have any experience with this? The wrap loan would be made by an individual (not an entity) to the extent that it matters.

[Michael Plaks]

Quote from @Tyler Pietz:

I am the looking into the tax implications of a subject-to / loan wrap deal on a primary residence from the perspective of the seller/lender; specifically, the treatment of the interest on the existing mortgage post-sale and whether the seller may claim this as investment interest on schedule a / 4952 to offset the interest income from the new loan.

Does anyone have any experience with this? The wrap loan would be made by an individual (not an entity) to the extent that it matters.

I disagree with my colleagues on this one. The interest WAS personal interest while the property was your residence. Once you sold it on a wrap, it became an income-producing investment property, in my opinion. I would deduct it on 4952.

But it is wasted anyway if you do not have enough itemized deductions to overshoot the standard deduction.