No mortgage payments, no deduction
QUESTION: Like so many parents these days, we would like to co-sign a mortgage loan for our single-parent daughter. Our daughter will make the down payment and all the monthly payments.
Our broker said that because our daughter's income is not very large, we could use a portion of the mortgage income deduction that she doesn't use because we are technically on the note. Is this correct?
ANSWER: Your broker has led you astray. The plain fact is that if you do not make any of the mortgage payments, you are not entitled to any of the mortgage deduction. It does not matter whether your daughter can make the best possible use of this write-off or not. If you think about it, the logic becomes clear. Why should you get a deduction for something you are not paying?
If, however, you should share in some of the mortgage payments, you would be entitled to a deduction. But you would have to claim your daughter's home as your second residence, as mortgage deduction rules have been tightened since 1986.
If you already own a second home and are claiming a mortgage deduction there, you would not be entitled to another second-home mortgage deduction on your daughter's home.
Some association fees may be deductible
QUESTION: I recently purchased a new home and was required to join the local homeowners association. My fees cover the cost of construction, maintenance and insurance for the project's streets and parks. My development is not a gated community and the streets and parks are open to the public.
I think I am being taxed twice since I already pay property taxes for the upkeep of the city's streets and parks. Do I have a strong argument to challenge these fees?
ANSWER: Check with your homeowners association. In all likelihood you will find that the streets and parks in your development have not been dedicated to the city or county. Although these facilities may be open to the public, technically -- they are considered private property and are the responsibility of the association to maintain.
The fees you pay for this are not considered a tax because, by definition, taxes are used to maintain public facilities. Hence, no double taxation.
Perhaps the logic of this argument leaves you a bit perplexed, even angry. But you're not likely to get very far in your challenge.
However, a portion of your homeowners association fees may still be deductible when you sell your home. To the extent that your fees are used to construct permanent capital improvements to the development -- streets, swimming pools, clubhouses, etc. -- the charges for these projects may be added to the basis of your home. The effect of this will be to reduce your taxable gain when you sell your home.
! Los Angeles Times
(Send questions to Carla Lazzareschi, Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053)