In Chief Counsel Advice 201451027, where home mortgage payments are made from a joint checking account, with two equal owners, the payments are presumed to be made equally by each owner without competent evidence to the contrary. The CCA uses as reference Rev Rul 5966, which found that funds paid from a joint checking account of a husband and wife were presumed to have been paid equally by the spouses when a husband-and-wife file separate returns.

Chief Counsel Advice 201451027 concludes that a person who is jointly and severally liable on a home mortgage debt is entitled to deduct all the allowable interest on that debt, provided that person actually pays all the interest.

In determining the amount of interest deductible on the decedent's return, the general rules regarding payment from joint or separate accounts, and joint liability should apply. If the decedent paid interest from a joint account before death, his return should reflect one-half of the interest paid from the joint account before the time of death, in the absence of evidence that the interest was paid from the decedent's separate funds (CCA 201451027).

Where both taxpayers are liable on the mortgage, both are entitled to claim the mortgage interest deduction to the extent of the mortgage interest paid by either taxpayer. If the mortgage interest is paid from separate funds, each taxpayer may claim the mortgage interest deduction paid from each one's separate funds. If the mortgage interest is paid from a joint bank account in which each has an equal interest, under Rev Rul 59-66, it would be presumed that each has paid an equal amount absent evidence to the contrary (CCA 201451027).

CCA201451027 concludes that if co-owners of a house are both liable on a mortgage, each one may take a deduction for the amount each one pays, subject to the limitations and requirements of deducting mortgage interest.

An interest expense deduction is available only to those who are primarily liable on an underlying debt. However, when two or more persons are jointly and severally liable for a debt, each is primarily liable for the debt; each is entitled to a deduction for the interest on that debt that he/she pays. When co-signers make a gift to another co-signer who paid the interest, this has no effect on the rule.

A father was allowed to deduct the interest he paid on a note which he co-signed with his son as evidence of a student loan to the son for tuition, fees, etc. (Rev Rul 71-179, 1971-1 CB 58).

A father was allowed to deduct mortgage interest paid on a property held in common with his daughter. It didn’t matter that he had temporarily conveyed legal title to his daughter to avoid creditors’ claims (Conroy, Thomas, (1958) TC Memo 1958-6).

Where mortgaged property is owned jointly, and joint owners are jointly liable on the mortgage, each owner is entitled to a deduction for the mortgage interest he/she actually pays out of his own funds.

However, when there isn’t joint liability on the mortgage or where there is right to reimbursement, and one joint owner pays all or part of the mortgage interest, the deductibility is the same as under the rules for taxes (see Chapter 1.07).

Are a joint tenant’s monthly payments of a mortgage debt on property held jointly regarded as gifts to the other joint tenants?

FACTS: An individual provided funds for the down payment for a purchase of real property and then conveyed two-thirds of the property to his two children; the property was held in joint tenancy. The individual subsequently made payments on the mortgage without expecting reimbursement from the children.

FINDING: Transfer of the property was termed a gift to each child--after the transfer, the taxpayer and each of the children held a one-third interest in the property. The subsequent mortgage payments were also considered monthly gifts to each child, each equal to one-third of the mortgage payment. (Amundson, Brent, (1990) TC Memo 1990-337)

FACTS: A taxpayer’s sister bought a home which she financed with a mortgage. She then agreed to sell one-half of the property to the taxpayer in return for the taxpayer paying the mortgage. The taxpayer made the mortgage payments, but didn’t disclose his ownership or become directly obligated to the mortgagee (he didn’t want to incur the fees required for refinancing). However, an unrecorded quitclaim was made on the property.

FINDING: The taxpayer had an enforceable, interest-bearing debt to his sister. His payments to the mortgagee were, in effect, payments to his sister. Taxpayer gets an interest deduction for his payments.