Legal Question in Real Estate Law in California

legal mortgage

Instead of obtaining a mortgage through a bank, can I obtain one through my parents and still deduct property tax and interest from my income? How do I make this mortgage legal in the state of California for the courts, and the IRS and what forms need to be filed and with whom?


Asked on 4/03/02, 10:55 pm

2 Answers from Attorneys
Scott K. Zimmerman Law Office of Scott K. Zimmerman

Re: legal mortgage

YES, YOU CAN DEDUCT THE INTEREST PROVIDED THAT YOU PAY THEM........ ANYONE CAN LOAN YOU MONEY, AND CHARGE YOU INTEREST, AND WHEN YOU PAY IT YOU CAN DEDUCT IT.

THE METHOD IS A DEED OF TRUST, AND A TRUST DEED NOTE, AND THEN YOU RECORD THE DEED OF TRUST AT TE COUNTY RECORDERS OFFICE IN THE COUNTY IN WHICH THE PROPERTY IS LOCATED.

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Answered on 4/03/02, 11:44 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: legal mortgage

If you owe, and pay, the property taxes, you will be able to deduct them.

The mortgage interest paid to your parents will also be deductible (by you), and must be reported by them as income. To keep the IRS completely happy, the terms of the loan should be commercially reasonable .... in other words, if the interest rate is way too low or way too high, the IRS could challenge the loan as a sham designed to make a gift or shift income from one taxpayer to another.

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Answered on 4/04/02, 12:13 am


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