If you make payments on a mortgage that is not in your name, you can deduct the interest as long as you are the legal or equitable owner of the property that secures the mortgage.
“Legal” title and “equitable” title are two different things, and you need one or the other to qualify for the interest deduction.
Legal title. This means legal ownership according to the real estate laws of your state. In general, the legal title requires a deed of ownership that is correctly recorded according to the laws of your state.
Equitable title. Under this doctrine, you prove that even though you do not have legal title, you bear the benefits and burdens of the property and are thus the valid owner under the law for specific purposes.
When a court considers an equitable ownership claim, the judge looks at all the facts and circumstances of the situation. The factors the courts consider are:
- right to possess the property and enjoy its use, rents, or profits;
- duty to maintain the property;
- responsibility for ensuring 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 a legal title at any time by paying the balance of the purchase price.
You don’t have to prove every element in the list, but you want to show many. The more elements you have on your side, the stronger your case will be.
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