English Deutsch Français Italiano Español Português 繁體中文 Bahasa Indonesia Tiếng Việt ภาษาไทย
All categories

My child is thinking about a home purchase and I was considering financing the loan myself, and thereby providing a much better rate, no closing costs, etc.; my question concerns end of year tax considerations.
My child would claim the interest paid, and I would claim the interest income, but how does an individual go about reporting this? Financial institutions send a 1099; can an individual do the same, and how do you go about it?
Anyone have any thoughts on this? Thanks.

2007-05-03 15:02:03 · 4 answers · asked by John W 3 in Business & Finance Taxes United States

4 answers

Are you buying the property outright for cash and then selling it to your child with owner financing?

If that is the case, you report the interest income on Schedule B, and your child reports the interest paid to you on Schedule A. Your child will report your name and SSN on Schedule A as the lender. You will report your child's name and SSN on Schedule B.

You can draw up an amortization table and then each of you knows how much interest has been earned and paid. You do not have to issue a 1099.

However, if you are loaning the money to your child to purchase the home outright, then the child owns the property free and clear. No mortgage interest deduction is possible, even though you may be receiving payments from your child. The loan is not secured by the property. Although the interest would not be deductible to the child, your interest income would be taxable to you.

If your child is not able to get financing for the home, then that should send a red flag to you. If your child defaults on the mortgage, what will you do? If your child is married and then divorces, what happens to the mortgage? Upon your death, or your child's or his spouse's death, what complications arise?

2007-05-03 18:07:30 · answer #1 · answered by ninasgramma 7 · 2 1

I am with the last poster - I am against loaning children money - if the child defaults, it can cause grief in the family.

BTW - you can't eliminate closing costs - just the outrageous fees some charge. You still should have title insurance (pretty bad to find out your child doesn't have clear title to the property after it's paid off), you have to pay the county clerk to register the deed, pro-rata taxes, et al. BTW, if you have good credit, you can get a mortgage company that doesn't charge closing fees at all - I know that I did.

You don't need a 1099 - when your child claims the interest paid, they put your social security # in - and the IRS looks for that as income to you when you file your taxes.

2007-05-03 22:54:42 · answer #2 · answered by Anonymous · 5 0

In any case, you wouldn't be issuing a Form 1099. It would be Form 1098 for mortgage interest. I have several clients who have seller-financed mortgages (on both the seller & buyer sides). I always recommend that Form 1098 be prepared so that the interest reported by the lender & borrower are the same.

2007-05-04 15:55:25 · answer #3 · answered by Rene F 2 · 0 1

i am not in agreement in general with parents helping their children buy houses; that is an investment a child needs to make on their own; besides, it is always a bad idea to have business relations with family members.

2007-05-03 22:10:15 · answer #4 · answered by KJC 7 · 2 2

fedest.com, questions and answers