DEAR BOB: For the last six years, I have lived in my mother’s house to take care of her, as she is very senile. I have been making the mortgage payments and paying the property taxes. However, when I had my income taxes prepared last year, I was told I am not entitled to these deductions because my name is not on the title and my mother’s name and Social Security number are on the mortgage. Is this true? –Michele M.
DEAR MICHELE: Yes. The reason you are not entitled to claim those itemized deductions on your personal income tax return is you have no legal obligation to make those payments. You may have a moral obligation to help your mother, but that doesn’t count with the IRS.
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However, this problem is easily solved. If your mother is capable of signing a quitclaim deed, she can add your name to her title, perhaps by holding title in joint tenancy with right of survivorship. Her name still remains on the title but now you will be legally obligated for those payments you have been making and can claim them as itemized deductions on your personal income tax returns.
But there is no need to add your name to the mortgage obligation. Millions of U.S. homeowners make payments on mortgages that are not in their names. All that matters to the IRS is you must be legally obligated to pay the expenses, as you will be after your mother adds your name to the house title. For details, please consult your tax adviser or a local real estate attorney.
REMAINDER INTEREST ISN’T WORTH MUCH IF LIFE TENANT IS STILL ALIVE
DEAR BOB: I am a joint remainderman with my husband on a farm and house where my mother lives as the life tenant. I am divorcing my husband and want to know what value my remainder interest has at this time, if any. The property and farmhouse were appraised at $122,000 –Mary L.
DEAR MARY: Until your life-estate-tenant mother dies, your remainder interest has very little market value. The reason is, unless your mother is at death’s door with a terminal disease, there is no resale market for remainders.
Maybe you can trade your ex-husband something of little value if he will sign a quitclaim deed to you for his remainder interest in the property.
REFINANCE TO GET OUT OF BAD 8.5 PERCENT ADJUSTABLE-RATE MORTGAGE
DEAR BOB: Why did my ARM (adjustable-rate mortgage) go from 6.5 percent to 8.5 percent interest last November? It is tied to the 11th District Cost of Funds Index. I will soon be 76 and owe only $74,500 on a house worth about $700,000. At my age, my life expectancy isn’t too long. I doubt I can qualify to refinance because my income is Social Security benefits, plus some rental income. What should I do? –Diana C.
DEAR DIANA: You definitely should refinance. The reason your ARM adjusted last November, I suspect, is your locked-in interest-rate period expired and now your ARM interest rate is a combination of the Index (currently 4.346 for the cost of funds index, as I write this) plus the margin.
It appears you have a very high margin above the index. Get rid of your bad ARM.
If you have any problem qualifying to refinance with a fixed-interest-rate mortgage around 6 percent interest, ask the lender for a “no doc” mortgage. That means the lender won’t check your income. Sometimes these are called “stated income” mortgages.
If you need cash, perhaps for a new roof, you can borrow more than the $74,500 on a “cash-out mortgage” to pay off your old ARM.
Another alternative is to get a home equity line of credit (HELOC) at your bank to pay off the old mortgage. The best rate I’ve seen is the prime rate minus 1 percent, which would be about 7.25 percent interest. Get the biggest HELOC you can obtain so you will have a credit line available for emergencies.
Still another alternative, if the property is your principal residence and you plan to stay in it at least five years, is a reverse mortgage. You can use a lump sum to pay off your $74,500 existing mortgage and then either take a credit line (except in Texas) or lifetime monthly income for the balance of your entitlement.
The big advantage of reverse mortgages is no monthly payments. Details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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