Tax Treatment for Subject-To Homes

4 Replies

I had a question and was going to post it here before talking to my CPA. We have a house we took subject to the existing financing earlier this year. At the end of this year, I assume the previous owner is going to receive a 1098 with the mortgage interest paid noted on it. I assume they can't take this deduction, since they do not live in the house, and as the owners we would be able to write off the interest as a business expense. Is there anything tricky beyond that I should consider?

-Christopher

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Originally posted by @Account Closed :
Originally posted by @Christopher Brainard:

I had a question and was going to post it here before talking to my CPA. We have a house we took subject to the existing financing earlier this year. At the end of this year, I assume the previous owner is going to receive a 1098 with the mortgage interest paid noted on it. I assume they can't take this deduction, since they do not live in the house, and as the owners we would be able to write off the interest as a business expense. Is there anything tricky beyond that I should consider?

-Christopher

 He who makes the payments gets the tax writeoff. Have the seller send you the 1098, draw a line through his name and social security number and insert yours. This should have been addressed when you closed. We use specific disclosures to address these and other items and we always use escrow/attorneys to close.

Thanks for the quick response. We will receive the 1098 at the end of the year (not the buyer) and will follow your advice. We did put the transaction through escrow, as we would with any sale here. Is there anything else I should keep in mind or what we should have addressed at close that we might have missed? This is the first (and only) house we've taken subject to. All our other properties were traditional sales. 

-Christopher

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@Christopher Brainard

You're correct. Have two tips for you. First - make sure you have online access to the seller's loan. Otherwise, getting a copy of his 1098 may be a problem. Two - report it as "other interest" and not "mortgage interest", unless you enjoy responding to IRS inquiries.

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