Tax deduction- Buying first home for a relative in another state

[chk207]

What is the name of your state? I am a resident of VA and plan on permanently moving back to NY in a few years.

I need some advice. I'm going to buy a condo for a relative in NY. I currently rent in VA. Is it possible for me to get that tax (mortgage/interest) deduction for this home even if it is in another state. I know that you get this deduction if a you buy a home, and you do not get it if it is an investment. Buying this home for this relative is not an investment. I may possibly live there when I move back to NY. In the meantime, I will rent in VA.

What should I do?

THanks

[LdiJ]

Originally Posted by chk207

What is the name of your state? I am a resident of VA and plan on permanently moving back to NY in a few years.

I need some advice. I'm going to buy a condo for a relative in NY. I currently rent in VA. Is it possible for me to get that tax (mortgage/interest) deduction for this home even if it is in another state. I know that you get this deduction if a you buy a home, and you do not get it if it is an investment. Buying this home for this relative is not an investment. I may possibly live there when I move back to NY. In the meantime, I will rent in VA.

What should I do?

THanks

You can get a mortgage interest deduction for a second home even if it is in another state. The key in this instance is whether or not this can qualify as a second home. Who is the relative for whom you are buying the condo? Will you have a room that is your own room in the condo?

[abezon]

The NY home will qualify as your second home if you either use it as a vacation home or if you rent it to a friend or relative for less than fair market value. If you rent the place at FMV, you will need to file a Schedule E to claim the rent income & expenses. If you rent at less than FMV, see a tax pro about how to apportion the expenses.

[LdiJ]

Originally Posted by abezon

The NY home will qualify as your second home if you either use it as a vacation home or if you rent it to a friend or relative for less than fair market value. If you rent the place at FMV, you will need to file a Schedule E to claim the rent income & expenses. If you rent at less than FMV, see a tax pro about how to apportion the expenses.

I am not sure I agree with your second point. I don't know that renting the home at less than fmv qualifies it as a second home.

[abezon]

Pub 527, p. 6 states that personal use includes any use by an owner or owner's family member, or renting the dwelling at less than FMV rent.



Pub 936 states:

Generally, [deductible] home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.

***
The mortgage must be a secured debt on a qualified home. “Secured debt” and “qualified home” are explained later.
***

Qualified Home
For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

***
Main home. You can have only one main home at any one time. This is the home where you ordinarily live most of the time.

Second home. A second home is a home that you choose to treat as your second home.

Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.

Second home rented out. If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home. For information on residential rental property, see Publication 527.

[chk207]

Originally Posted by LdiJ

You can get a mortgage interest deduction for a second home even if it is in another state. The key in this instance is whether or not this can qualify as a second home. Who is the relative for whom you are buying the condo? Will you have a room that is your own room in the condo?

I'm buying a condo for my mother, who is my dependent for tax purposes. I'm not sure if it will be a 2 bedroom apt. I believe it would qualify as a second home even if I am not residing there according to the irs website. Would the mortgage interest deduction for this second home be comparable to a deduction for a main home? A person who owns a main home can have a deduction allowed in year paid, but not for a second home. So, I guess that means that the deduction would be allowed ratably for a condo I buy for my mother.

Actually, I don't think I will be living with her when I move back to NY. Maybe temporarily until I can afford to buy myself an apt in Manhattan.

Do homeowners get high deduction for main homes as opposed to second homes?

[abezon]

Originally Posted by chk207

I'm buying a condo for my mother, who is my dependent for tax purposes. I'm not sure if it will be a 2 bedroom apt. I believe it would qualify as a second home even if I am not residing there according to the irs website. Would the mortgage interest deduction for this second home be comparable to a deduction for a main home?

yes.

Originally Posted by chk207

A person who owns a main home can have a deduction allowed in year paid, but not for a second home. So, I guess that means that the deduction would be allowed ratably for a condo I buy for my mother.

Where the heck did you get that idea?? The deduction for a second home is the same as for a 1st home -- the interest paid in that year + property taxes. The only thing that has to be prorated for a 2nd home is points. So, don't pay big points thinking you can deduct them all in the year of purchase.

[LdiJ]

Originally Posted by chk207

I'm buying a condo for my mother, who is my dependent for tax purposes. I'm not sure if it will be a 2 bedroom apt. I believe it would qualify as a second home even if I am not residing there according to the irs website. Would the mortgage interest deduction for this second home be comparable to a deduction for a main home? A person who owns a main home can have a deduction allowed in year paid, but not for a second home. So, I guess that means that the deduction would be allowed ratably for a condo I buy for my mother.

Actually, I don't think I will be living with her when I move back to NY. Maybe temporarily until I can afford to buy myself an apt in Manhattan.

Do homeowners get high deduction for main homes as opposed to second homes?

Since your mother is your dependent for tax purposes, I don't think that you would have any problem at all qualifying the home as a second home. Otherwise, I agree with Abezon's last responses.

[tranquility]

This thread has wandered a bit and the points have gotten fuzzy. On the OPs question, I generally agree with abezon and note there are day limitations involved and suggest you consult a professional. There are some questions regarding some factual situations where which deductions you can take depend on where you live. There is a circut split and a difference in tax court from a couple of circuts regarding mortgage interest and something else (not at the tip of my tounge) in the personal/rental decision. A professional who practices in the area of the property is important.

Info edit:
Along with mortgage interest, the treatment of real estate taxes are dependent on where you live if there is a deduction limitation based on personal use. The tax court differs from the 9th and 10th circut. VA is not in either the 9th or the 10th, so I'd go with the tax court--unless you want to force the issue and want to fight the IRS in court.