Question for Tax Lawyers

couple of problems you need to clarify - the title of the house in in the old womens name but the mortgage is in another persons name? I don't see how this could ever be done, the person on the title must also be on the mortgage. Who takes the the deduction currently for the mortgage interest?

 

I should clarify my question - you can't put a mortgage on a property you do not have title to. in you scenario either they are both on the title and mortgage or the payor is jointly on the mortgage with the old woman who has the title

 

ok, so since the woman is on the mortgage - she can pay it off. The person paying can gift her the money to pay it off, but I don't understand why the payor can't just pay it off him/herself, why does that trigger gift tax?? technically the older woman should be inputting some income each year she gets to live rent free in a house where someone else pays the mortgage. If the payor is claiming the mortgage interest is related to primary residence that also is a problem since they do not live there , all technicalities but I wanted to mention it, my info is worth what you paid for it I am sure Dale will be along

 

If you are talking a house less than $50,000, it is very likely the IRS will not even notice.


If you are talking a $10,000,000 house.... That is a different animal.


How much money are we talking?? And is the person paying the motgage also one of the kids?

 

Tom is on the right track here, kinda. If the old woman and her friend are both on the mortgage, then friend is probably not really making any gifts to the old woman when he makes 100% of the payments. The fact that old friend is not on the title clouds the water a bit, but the answer probably lies in how the mortgage was obtained. That is, if the old woman and friend purchased the house as tenants in common, it is still jointly owned even though friend's name is not on the deed. A lot would depend on applicable state law, but my uneducated guess is that the old woman could be viewed at a nominee for friend.

Regardless of that mess, friend can make cash gifts to anyone he or she chooses and if these gifts are under $11k, the gifts will be tax-free under the annual exclusion. The facts that the kids turn around and make cash gifts of $11k apiece to mom doesn't necessarily defeat the initial gift presumtion, unless the first gift from the friend to the kids was conditioned on the subsequent gift. It doesn't look good, but is not necessarily fatal.

Then again, if friend is a primary obligator on the mortgage, he could just pay the thing off without creating a gift to anybody. Other than the fact that when the home goes to the kids upon mom's (and presumably friend's) death, this transfer may be subject to estate taxes, which are different from gift taxes. Unless, of course, both mom and friend die in 2010. (Otherwise known by those of us in the trade as, "The Year to Throw Momma From the Train.") Even this 2010 advice will be meaningless, if Congress decides to change the law, again.

Truth is, you have a mess, and I strongly advise that someone talk to a local attorney to understand whose on first and what's on second when it comes to the deed and the mortgage. If friend has heirs, they might come unglued if they find out that daddy or whomever has been paying someone else's bills.

Once you figure that out, the tax issues are simple <sigh>.

Good luck, DrTax

You are not my client, and I'm not your advisor. This advice and two bucks will not even get you a cup of coffee anymore.

 

I believe that it was Ben Franklin who said that you never really get to know anybody until you share an inheirtance with them. I suspect that there is a relatively simple way to handle this situation if the parties seek the advice of a lawyer. However, if your family is like mine, this will never happen. You can lead them to water, but you can't make them drink.

Good luck, Dale