Paying mortgage doesn’t guarantee tax break

DEAR BOB: For the last six years, I have lived in mymother’s house to take care of her, as she is very senile. I have been makingthe mortgage payments and paying the property taxes. However, when I had myincome taxes prepared last year, I was told I am not entitled to thesedeductions because my name is not on the title and my mother’s name and SocialSecurity number are on the mortgage. Is this true? –Michele M.

DEAR MICHELE: Yes. The reason you are not entitled to claimthose itemized deductions on your personal income tax return is you have nolegal obligation to make those payments. You may have a moral obligation tohelp your mother, but that doesn’t count with the IRS.

Purchase Bob Bruss reports online.

However, this problem is easily solved. If your mother iscapable of signing a quitclaim deed, she can add your name to her title,perhaps by holding title in joint tenancy with right of survivorship. Her namestill remains on the title but now you will be legally obligated for thosepayments you have been making and can claim them as itemized deductions on yourpersonal income tax returns.

But there is no need to add your name to the mortgageobligation. Millions of U.S. homeowners make payments on mortgages that are notin their names. All that matters to the IRS is you must be legally obligated topay the expenses, as you will be after your mother adds your name to the housetitle. For details, please consult your tax adviser or a local real estateattorney.

REMAINDER INTEREST ISN’T WORTH MUCH IF LIFE TENANT IS STILLALIVE

DEAR BOB: I am a joint remainderman with my husband on afarm and house where my mother lives as the life tenant. I am divorcing myhusband and want to know what value my remainder interest has at this time, ifany. The property and farmhouse were appraised at $122,000 –Mary L.

DEAR MARY: Until your life-estate-tenant mother dies, yourremainder interest has very little market value. The reason is, unless yourmother is at death’s door with a terminal disease, there is no resale marketfor remainders.

Maybe you can trade your ex-husband something of littlevalue if he will sign a quitclaim deed to you for his remainder interest in theproperty.

REFINANCE TO GET OUT OF BAD 8.5 PERCENT ADJUSTABLE-RATEMORTGAGE

DEAR BOB: Why did my ARM (adjustable-rate mortgage) go from6.5 percent to 8.5 percent interest last November? It is tied to the 11thDistrict Cost of Funds Index. I will soon be 76 and owe only $74,500 on a houseworth about $700,000. At my age, my life expectancy isn’t too long. I doubt Ican qualify to refinance because my income is Social Security benefits, plussome rental income. What should I do? –Diana C.

DEAR DIANA: You definitely should refinance. The reason yourARM adjusted last November, I suspect, is your locked-in interest-rate periodexpired and now your ARM interest rate is a combination of the Index (currently4.346 for the cost of funds index, as I write this) plus the margin.

It appears you have a very high margin above the index. Getrid of your bad ARM.

If you have any problem qualifying to refinance with afixed-interest-rate mortgage around 6 percent interest, ask the lender for a”no doc” mortgage. That means the lender won’t check your income.Sometimes these are called “stated income” mortgages.

If you need cash, perhaps for a new roof, you can borrowmore than the $74,500 on a “cash-out mortgage” to pay off your oldARM.

Another alternative is to get a home equity line of credit(HELOC) at your bank to pay off the old mortgage. The best rate I’ve seen isthe prime rate minus 1 percent, which would be about 7.25 percent interest. Getthe biggest HELOC you can obtain so you will have a credit line available foremergencies.

Still another alternative, if the property is your principalresidence and you plan to stay in it at least five years, is a reversemortgage. You can use a lump sum to pay off your $74,500 existing mortgage andthen either take a credit line (except in Texas) or lifetime monthly income forthe balance of your entitlement.

The big advantage of reverse mortgages is no monthlypayments. Details are in my special report, “The Whole Truth About ReverseMortgages for Senior Citizen Homeowners,” available for $5 from RobertBruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736or instant Internet delivery at www.BobBruss.com.Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2007 Inman News

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