I bought my first Sub2 rental in summer '09. This happened without me even trying too hard. Lady friend of hours was 5 payments behind and wanted to move to Florida within days for health reasons. She found a deed somewhere just like a standard deed but it also disclosed existing mortgage that would stay in her name. We were able to file it in county court and the house got transferred to my name without problems. Easier than I thought.
My question is can I deduct interest from that loan that’s on her name but I’m making payments. Thank you for your help. Greg in Louisville KY.
Good job getting your deal done!!! Your question regarding taxes is simple. The deduction of interest is allowed one time, either by you or the original owner. As you will have proof of payment, you can deduct. I would, however, have the seller sign an affidavit that acknowledges that she will not be taking those deductions as you are making the payments, and keep that in file to C.Y.A. with the irs.
Another thought would be to go ahead and put the property into a land trust with you as trustee. The mortgage company will not think of this as a ‘red flag’ and they would not be concerned with the ‘due on sale’ clause. Putting property into a trust is a common financial planning tool and the mortgage companies won’t have any concerns. While doing so, you need a letter signed by the borrower/seller that you are trustee and permitted to speak with the mortgage company on her behalf.
Also, in the trust, you can have a provision that the trustee (you) assigns the rights to the deductions on the mortgage interest. Just remember that only one party can deduct the interest.
Lastly, speaking of C.Y.A., it is not my intent to give tax advice and you should always consult your tax preparer to confirm. Although you would get 20 different answers from 20 different accountants, my advice is that you purchase a book entitled 'The Complete internal revenue Code and read it, highlight it, study it, and learn the codes for yourself to know the truth.
I will get that book. I’ve been using TurboTax last three years and was able to avoid major mistakes but have feeling that there’s more information out there I could use.
I did use that trust method you mentioned on another house. Actually it is the house we are living in right now, bought from the same lady few years ago.
This time though we only had one day to make a decision, find appropriate deed, print it out, sign and file in the court. The next day she took off to Florida.
I had mixed feelings about that property it and my wife was against it but 6 months later after some updates it cash-flows about $1k after all expenses and has potential to be $2k at the end of this year and $3k when mortgage gets paid off in about 7 years. It’s 7 apartments but only 3 were rentable when I bought it. So it looks good.