IRS explains mortgage interest deduction for multiple owners

As a general rule, you can deduct home mortgage interest on your federal income taxes, as long as you itemize deductions. This sounds simple enough, but it can get complicated if a home is owned by more than one person. Recently, the IRS provided an explanation of how this works.

According to the IRS, the key question is how much interest each owner actually paid in a given year – not what percentage of the home each owner owns. That means, for example, that if you own a home jointly with a child – so you each own 50% – but you paid 100% of the mortgage interest, you can deduct 100% of the interest payments on your taxes.

Of course, that also means that your child can’t deduct any of the interest on his or her own taxes.

You should also note that in such a case, the amount of interest you paid beyond your ownership share would count as a gift to your child. If the amount is large enough, or if you made other gifts to your child over the course of the year, this could result in having to file a gift tax return.

If the interest payments were made out of a joint checking account, it’s presumed that each owner of the account contributed 50% of the payments. This rule would apply, for example, to an unmarried couple who have a joint checking account and own a home together, as well as to a married couple who have a joint checking account but file separate tax returns.