Who Qualifies for a Mortgage Interest Deduction?

Who can take the deduction for mortgage interest? Is it the mortgage borrower? Is it the deed owner? Is it the person actually paying the mortgage?

It is not required for you to have a true debtor-creditor relationship with your lender to take the mortgage interest deduction. Title 26 Code of Federal Regulations section 1.163-1(b) provides, quote "interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness."

"Legal" title and "equitable" title are two different things. You just need one or the other to qualify for the interest deduction.

Legal title means legal ownership according to the real estate laws of your state. In general, legal title requires a deed of ownership that is properly recorded according to the laws of your state.

Equitable title means that you prove—even though you do not have legal title—you bear the benefits and burdens of the property and are thus the true owner under the law for certain purposes. Considerations under equitable ownership claim:

• Right to possess the property and enjoy its use, rents, or profits;
• duty to maintain the property;
• responsibility for insuring the property;
• risk of loss on the property;
• obligation to pay the property’s taxes, assessments, or charges;
• right to improve the property without the legal owner’s consent; and
• right to get legal title at any time by paying the balance of the purchase price.

Under the equitable ownership rule, you can get a deduction for the mortgage interest you pay even if you don’t own the house and are not listed on the mortgage.

If you share the deduction of mortgage interest with another person, but you are not named on Form 1098, you will want to create and attach a short and simple statement to your Schedule A, which states how much of the interest you each paid and give the name and social security number of the person who received the 1098.