Can someone listed as a "co-borrower" on a mortgage claim all of the interest paid on her taxes?

Question

As a co-borrower, the mortgage company does not report the interest paid under her social security number. It is only reported under the primary borrower's social. Can the co-borrower still claim the interest on her taxes? I assume that as long as only one person claims the interest, not both, then there is no problem. But the IRS might think this is fishy if the interest isn't reported under the co-borrower's social.

Answer 1

While you do not say so, I can assume you are in the USA as home mortgage interest is not deductible under other countries tax systems.

Anyone personally liable for the interest, so long as s/he paid that interest, may deduct it.

Here's the official explanation:

"You can deduct home mortgage interest only if you meet all the following conditions.

"You must file Form 1040 and itemize deductions on Schedule A (Form 1040).

"You must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.

"The mortgage must be a secured debt on a qualified home...."

http://www.irs.gov/publications/p936/ar02.html

If the interest statement from the mortgagee bank does not reflect the fact (or the social security number or ITIN is not yours) then you can add an explanation, and attach a photocopy of that interest statement.

IRS doesn't consider anything "fishy" if it fits within common parameters. Their computers may flag a discrepancy, in which case an explanation on the tax form or an attchment should work. (There's a more sophisticated alternative in which the amount is shown on the return of the person whose social security numbr is given, then deducted on the next line ("backed off") with an explanation and reference to the other person. But that's more common with taxable (form 1099) items than deductible ones.

ADDENDUM: JTM FRAGINAL is confusing a "co-borrower" with a guarantor. Ignore what he says. If a guarantor pays a defaulted loan, then it is in most cases a nonbusiness bad debt, not a deductible interest payment -- unless it somehow meets the criteria stated above.

You have not suggested that this is investment property rather than a principal or secondary residence. Investment interest is deductible in proportion to the investment participation as declared on schedule E, form 1040. And if its a partnership, in accordance with form 1065 (return of partnership income).

Answer 2

Co Borrower Mortgage Tax Deduction

Answer 3

If the primary borrower is not going to claim the interest, the co-borrower may do so. However, if you ever get audited, you may be asked to prove that it was you and not the primary that actually paid the interest. After all, the reason for the tax break is to help home buyers. You cannot claim a deduction for something you did not do. ;)

Answer 4

Even if the co-borrower does take the interest, there are different rules for homes used as a principal residence and those used for other purposes (like investment property).

You should check with an accountant to see what you can and cannot do.

Answer 5

You need to consult a tax attorney instead of a group of Yahoos.

My two cents: The IRS does not want the same interest to be claimed on two different returns. No double-dip-deductions.

Answer 6

The principal takes the brunt of the loan first and the co-borrower is only liable when the principal defaulted. Thus, interests are also paid to the principal and not the co-borrower.

Answer 7

Would like to know this too

Answer 8

that's a great question