Academic journal article Journal of Accountancy

Equitable Owner Equals Deduction

Academic journal article Journal of Accountancy

Equitable Owner Equals Deduction

Article excerpt

The Tax Court held that a married couple could deduct mortgage interest and property tax payments made from a corporate checking account on a home that was owned by their son. The court held that the taxpayers were equitable and beneficial owners of the property and that the checking account was in essence their personal account. Thus they were entitled to itemized deductions for the payments.

Taxpayers may deduct interest paid by them on debt related to a qualified residence. Generally, the debt must be the taxpayer's, not someone else's. Treas. Reg. [section] 1.163-1(b) permits a deduction for interest paid on a mortgage when a taxpayer is the legal or equitable owner of the property, even though the taxpayer is not directly liable for the mortgage. In Saffet and Aria Uslu v. Commissioner, TC Memo 1997-551, the Tax Court held that a married couple was the equitable owner of a home titled to the husband's brother since, from the date of acquisition, they had occupied the home and made all payments for the mortgage, taxes, repairs, maintenance and improvements. In Bruce D. Loria v. Commissioner, TC Memo 1995-420, the same court held that the taxpayer was unable to demonstrate that he was the equitable owner of a home owned by his brother--thus denying deductions for interest and property taxes.

In the instant case, Ndile George Njenge and Ekinde Sone Nzelle Rachel resided in a home owned by their son. In 2001, their son purchased the home in his name since the taxpayers were unable to obtain financing; however, from the date of acquisition until the date of the trial, Njenge and Rachel made all of the mortgage, property tax and maintenance payments and were the sole occupants of the home. …

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