Is this considered income?

Question

My husbands neice ownes the home we live in. We have been here since Katrina. His niece was behind on her house note and had already moved into another house w/ her mother. The house was going to be repossed. My husband and I caught up all the behind notes taxes etc. On the home and esentually took over the note. We pay close to 1400 a month. The entire amount goes straight to the morgage company. My husband cut his thumb off in september and this month "dec" we werent able to pay the note. FEMA is willing to help us get caught up. But His neice doesnt want us to ask FEMA for help because she said it will cause her to have to claim the Morgage as INCOME. If all the money is going to the Morgage company is this income? And if it is how much would this effect her income taxes?

Answer 1

Tell your niece she doesn't know what she is talking about. Since you live in her home, it's considered a RENTAL, and is actually a DEDUCTION for her on her taxes (Schedule E). Sure, she will have to claim the money from FEMA as income, but she already has to claim the 1400 a month that you are paying on the mortgage already. After all, it's not your house. Even though you pay the company directly, to the IRS it goes to her first, and then to the mortgage company.

At any rate, since it's considered a rental by the IRS, this is actually a benefit for her! She should be able to write off MUCH MORE than the cost of the mortgage, like mileage to take care of the property and any repairs. For example:

Rental Income: 1,400x12 =16,800
Less Mortgage interest: -1,300x12=(-15,600)
Less Mileage(use standard mileage rate) about (-5,000)
Less Repairs and maintenance: (-5,000)

So as you can see, just in the example above she should end up with a -8,800 which she can actually write off on her taxes!! Now don't use that example lol. But I think you get my point. Rental properties actually help, not hurt, your income taxes.

Answer 2

This should not be income.
1. The FEMA benefit is to you not your niece.
2. Mortgage interest and taxes are tax deductible, only principle is not and unless this is a loan that is in year 15 or later the vast majority of the payment is interest.

Further more even if it was considered income, the niece sounds like she is in a low tax bracket and probably doesn't pay much anyway.

Lastly whats worse a little more in taxes or a foreclosure?

Answer 3

Basically, you are renting from her, just paying the mortgage directly.

She should WANT you to do this, because she can write off basically everything you paid, and could lose money on paper after depreciation, thereby lowering her taxes on her other income. Interest paid and property taxes are directly deducted from the rent income, she's really only liable on taxes on any principal paid, which is nominal. But, if she depreciates the property, it will cause her to have a loss on paper.

Get the money and keep the mortgage current. Small price to pay for any nominal tax hit, that shouldn't even be there if it's done right.

Answer 4

It would appear that your niece is hiding something. There is no reason for you not to go to Fema if you need help. You obviously have done nothing wrong. If your niece does not want you to go to FEMA for help, then let her pay the mortgage in arrears. I don't think she has told you everything.

Answer 5

Yes. This is correct.

The mortgage payment is not a deduction and I am pretty sure that even mortgage interest is not deductible on investment property. Since she doesn't live there she can't list it as her primary residence.

What many other here are forgetting is that you are making her mortgage payment every month and that will count as her income.

Answer 6

If you have the note in your name then it will not affect her. If it is still in her name call an accountant and they should be able to help.

Answer 7

She'll be fine, dont' worry about her. It's your house now, and no a Note isn't income. I know I have one through my dad♥

Answer 8

Sounds like Income to me.. call H&R block

Answer 9

call irs