Legal Question in Real Estate Law in California

It seems you are asking how to get the benefits of ownership without paying any of the costs of ownership. That the IRS will not allow.But if what you want is additional income from your parents and they are willing to do so [which normally is not a good idea], if their tax rate is at least equal to your rate, more money can be saved by their taking the tax write offs and sending you the amount saved as a gift. There is no tax on the gift; it does reduce the total amount that is tax free as to their estate upon death, but as long as that exemption remains at several million dollars it should not matter. If you bought the property from your parents, the bank loan wouild become due and payable and you would have to get a loan from them to buy the house; you might as well have them co-sign on a loan to you and buy the house directly.

You and your parents need to read some books on taxes estates, etc before moving forward with idea that could cost you a lot of money and problems in the future. They need to do some estate planning, which requires going to an expert once they know what they want to do.

I don't know if Mr. Shers' answer is responsive or not. I would say that transferring ownership will trigger a "due on sale" clause in your parents' existing loan. Almost all residential loans have clauses that make them immediately due and payable in full upon any change in ownership, whether by sale or gift. Lenders will sometimes waive these clauses, e.g., when a house needs to be transferred due to a divorce settlement, but it would be very risky for your parents to sell this house to you without getting the lender's approval.

As to deducting mortgage interest, the deduction can be taken only by someone who is both (a) legally obligated to pay it, including a co-obligor, and (b) who actually makes the payments.

I agree with Mr. Whipple. When you take property with an existing encumbrance, you either take subject to, or subject to with an assumption. If you take subject to with an assumption, it means that you take the property subject to the existing deed of trust, and you assume personal liability on the underlying obligation. This has to be done with the express permission of the lender.

The tax benefits that you seek don't make sense. If you are not assuming the existing mortgage, and are not owners of the property, I don't see how you can legally claim a deduction for interest payments on the obligation. It appears to me that you would only be able to make those deductions if you assume the note and own the property.

Without assuming the note, it appears that you risk triggering the "due on sale" clause as explained by Mr. Whipple.