Deducting Mortgage Interest: not so fast!

Here's a Tax question for you: Husband and wife purchase a home. They get the money from Hubby's mom, who is loaded, and execute a note secured by the house. It's payable interest only for 30 years. Is the interest paid on the note secured by the home deductible? Of course, right? Not so fast. Recently a tax court ruled AGAINST homebuyers in this situation. Know why? Well, IRS publication #936 specifically stated the criteria for interest on a home mortgage to be deductible. Quoting:

Secured Debt


You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

Makes your ownership in a qualified home security for payment of the debt,

Provides, in case of default, that your home could satisfy the debt, and

Is recorded or is otherwise perfected under any state or local law that applies.

It's that third one that is important. VERY IMPORTANT. In the case above, mom had not bothered to have the note RECORDED in the county where the home was located. So the interest deduction could not be taken.

Always make sure your mortgage note is recorded, especially if you got the money from family instead of a traditional source.

Working with me and my team of professionals will get your home sold quickly at the highest price. And when you buy you'll be secure in the knowledge we have set you up for maximum success when dealing with Taxes.