Friends of mine are about to purchase a home. They got a loan for 200,000 from the wife's parents, instead of going thru a bank.
They will be paying interest on this loan.
Will they be able to claim the interest paid on their taxes?
Or not, because it's not from an official bank?
2007-02-05 11:24:21 · 4 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
There must be legal documentation registering the mortgage that you parents are holding
Secured Debt
You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:
Makes your ownership in a qualified home security for payment of the debt,
Provides, in case of default, that your home could satisfy the debt, and
Is recorded or is otherwise perfected under any state or local law that applies.
In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. In this publication, mortgage will refer to secured debt.
See Publication 936
http://www.irs.gov/publications/p936/ar02.html#d0e453
2007-02-05 11:45:53 · answer #1 · answered by Anonymous · 1⤊ 0⤋
1
2016-09-28 05:34:48 · answer #2 · answered by Evelyne 3 · 0⤊ 0⤋
Yes, they can claim it just like a bank loan but the parents need to file a 1096 showing what interest was paid each year. Any accountant can do that for them pretty cheaply.
2007-02-05 11:29:01 · answer #3 · answered by dreamgirl 5 · 1⤊ 0⤋
Yes, they can deduct the interest they pay. It will be income to the parents.
2007-02-05 11:27:22 · answer #4 · answered by Oh Boy! 5 · 1⤊ 0⤋