DEAR BENNY: My husband and I recently filed for bankruptcy after our home was foreclosed. My mother is willing to purchase a home in her name (as an investment property) and rent it back to us, as long as we can come up with the down payment for her purchase. My in-laws have agreed to provide the down payment. The terms of the investment loan do not allow the down payment to come from a third party, so the money needs to be "gifted" to my mother.
Essentially, we would be renting the property back from her. Would there be tax implications to her? Could my husband and I get the tax credit for the mortgage interest and property taxes? –Heidi
DEAR HEIDI: Sorry for your real estate loss, but it sounds like you have a great family to back you up. Your mother’s house will be a straight investment. She can deduct for tax purposes the real estate taxes and the mortgage interest she will pay and she should also be able to take depreciation over the years.
Assuming you will be paying her monthly rent, that will be ordinary income to her. Your mother should consult with a tax adviser before she moves forward with the purchase.
As for whether you and your husband can take the interest and tax deductions, the answer is no. Although there are some exceptions, the general rule is "he/she who pays the mortgage — and is named in the mortgage documents — gets the deduction."