If I obtain a property subject-to and then I’m named beneficiary of the trust, do I get the tax deductions for the mortgage interest b/c I’m paying the owner’s mortgage payment or does the actual owner (person whos mortgage the name is in) get the deduction? OR does my tennant/buyer who I lease/optioned the property to get the decdution OR do somehow we all three get it?
the bank is going to issue a 1098 form in the name of the person on the mortgage (and associated SSN); however, I’m not sure how to answer your question.
try posting over in legal, asset protection…there is a couple of folks who should be to nail this one down.
beneficiary has “beneficial” ownership and gets all the deductions. The 1098 will still come to whoever is on the note, since the bank doesn’t know who the beneficiary is. The bene takes the deductions, the borrower does not, and if anyone ever asks, you produce the trust document. However, I’ve never seen it come up.
Followup question:
If we assume that this acquisition via “subject-to” occurs on July 1st, wouldn’t the original owner be entitled to 50% of the 1098 deduction??
If so, then this really make the tax reporting a mess on these deals. You will have two tax returns submitted with the same 1098, with both claiming half of the amount. Maybe Im making it out to be more complicated that it really is…
the answer to your question is yes.
not complicated at all. just put the correct amount in the blank.
mark,
so the bene. gets the deduction. Now lets say I have TB, do they get the decduction aswell as me OR can I assign and/or give them the decduction? I was reading about trading higher rents in return for the tax right off’s. Just wondering how this would work?
generally, owners get deductions. While I don’t like the word “trade”, leases can be structured so that the tenant pays and deducts things such as taxes and interest.
OK, so I thought I’d jump in here for two posts and then go home, but whoa! There is some misinformation being bandied about here.
First off, when a property is placed into a land trust by an owner-settlor, nothing changes for the settlor because as far as the IRS is concerned nothing happened. The feds look THROUGH the land trust to the beneficiary or beneficiaries for income tax purposes and consider them owners of the property for ALL income tax purposes.
Re.the 1098 debacle…when there is a resident beneficiary or investor beneficiary included in the land trust along with the settlor beneficiary, the parties should direct the lender to send the 1998 to the trustee rather than the borrower of record, who will then copy it and send duplicates out to each beneficiary for their own personal tax purposes. IRC Section 163(h)4(D) will allow the resident beneficiary the full tax write for mortage interest and property tax if the transaction is structured as a triple-net lease of the property from the trustee by a co-beneficiary of the trust.
And who EVER said a lease could be structured with income tax benefits? Nooooooo! Be careful when giving answers. Any lease that would convey such rights would have to convey equitable interest in the property (see IRC163), thereby becoming a Contract of (or ‘for’) Sale (lease purchase vs. lease option) or a contract for deed. When equitable interest is given to a tenant there is no longer a lease, and eviction is no longer available…instead, ownership ensues, forcing judicial foreclosure and ejectment action versus eviction in order to cure a default.
In multiple beneficiary land trust models (e.g., PACTrust, NEHTrust, etc.), the possessory (lease) agreement does not and can not convey any tax benefits what-so-ever: it’s the beneficiary agreement in concert with a carefully constructed triple-net lease that positions a trust beneficiary for the tax benefits allowed by IRC163 (and Rev. Rul 92-105).
Re. assigning tax benefits…the answer to you question is NO. No one can assign or sell tax benefits per se. If one is in a position to take them and qualified under IRC163 then they just take them, with or without anyone else’s permission or assignment. If you pay the deductible portions of the monthly payment and are qualified under 163, you just take the write off. That’s it. Can you charge higher rents in the face of your tenant knowing he has the right to the tax deductions? Absolutely! And you should!
Regarding pro-rata shares of the tax year, of course each party who can show that he/she is qualified to take the write-off will do so. If I’ve been paying for six months and you paid for six month prior to that and we both qualify…we both take our pro-rata shares of the deduction when we lay the paperwork out for our respective accountants.
Bill Gatten
the original question was regarding tax deductions. Leassees often receive tax deductions (property taxes being the most common) as specified in the lease, without receiving equitible interest in the underlying property.
And while you can direct the lender to send the 1098 to whatever mailing address you desire, it will still be in the name/taxpayer ID number of the individual obligated on the note.