Ask the Taxgirl: Home-Related Tax Deductions When You’re Not On the Deed

Taxpayer asks:

My wife and I live in a single-family home that we own jointly. We are retired, and our income is from Social Security. Our son contributes $600 monthly, which covers our real estate taxes and mortgage interest.

Is it possible for our son to take the tax deductions for the real estate taxes and mortgage interest without being on the mortgage?

Taxgirl says:

It sounds like some A-grade parenting was happening that resulted in having a son who is willing to help you out. I’m assuming from your email that your son is not staying with you, but if he is, I’ll address that twist at the end.

Let’s look at it in two parts.

Real Estate Taxes

Real estate taxes are typically deductible on Schedule A, which means that you must itemize to claim the deduction. With the higher standard deduction, this is a high bar for most taxpayers. For 2023, the standard deduction for married couples filing jointly is $27,700, and for single taxpayers, it’s $13,850.

There’s another financial hurdle: the SALT deduction cap. SALT taxes include property, income, and sales taxes, and the cap on combined SALT deductions is $10,000. If you’re paying $600/month for interest and real estate taxes, your real estate taxes aren’t going to max out that cap, but depending on where your son lives and works, it’s possible he might meet the cap.

Assuming that the numbers work out for him, you want to know whether he can properly deduct the real estate taxes. The answer is likely no, and here’s why. To deduct any tax under section 164, you have to meet two tests:

• The tax must be imposed on you; and
• You must pay the tax during your tax year.

It sounds like your son might meet the second test, but the tax is not imposed on him. Typically, real estate taxes are assessed to the property owners—that’s you and your wife. Under the Regs, he wouldn’t qualify for the deduction.

A quick add: An interesting case from Texas years ago, Powell v. Commissioner, T.C. Memo 1967-32, delves into the specifics of property ownership and taxes. In that case, the Tax Court found the test for deductibility isn’t focused solely on ownership, but on whether the taxpayer is at risk of losing ownership of the property if the taxes are not paid. It doesn’t change my answer to this question, but my fellow tax geeks might find it worth a read.

Home Mortgage Interest

Next, the home mortgage interest. The broad rule is that to claim the deduction, the property must be subject to a mortgage, and the property must be your principal or second residence (subject to dollar limits).

That means that ownership is again an issue—but you don’t have to be on the title to claim the home mortgage interest deduction. According to Reg. Section 1.163-1(b), you must be the legal or equitable owner of the property that secures the mortgage to claim the deduction.

• A legal owner is typically evidenced by the name (or names) on the deed.
• An equitable owner is a little different—it’s a facts-and-circumstances test that looks at whether you treated the home as your own despite a lack of name on the deed. This tends to come into play, for example, when two people buy a home and one lacks the credit needed to be on the mortgage and is left off the title—there could still be equitable ownership if that person contributes to the household and otherwise acts like an owner. That doesn’t sound like the case here.

If your son isn’t living in the property and isn’t on the deed, it sounds like he’s just being a good son and helping you out. Based on the facts you offered, it doesn’t sound like he can claim the home mortgage interest deduction.

If, however, your son lives with you, it could be different. Depending on the specifics, he might be able to claim the deduction.

Sometimes, when faced with these questions, parents want to add their children’s names to the deed (or vice versa). But be careful. Tacking additional names onto property for short-term gains, like mortgage deductions, even for good reasons, can have other consequences. You might lose the ability to claim property tax freezes, or no longer qualify for benefits or favorable rates—and there are capital gains and basis issues to consider. If you have questions, I highly advise consulting with a tax or legal professional before making a change.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.