Tax Deductions?
Who gets the tax deduction for making the payments on the existing financing in a sub2 deal?
As far as I understand, we as the investor SHOULD get the deduction because we both own the property (deed in hand) and are making the payments, BUT because the loan is still held by the original owner, the lending institution will send them the documents needed to file at tax time (as well as sending them to the IRS with the required reporting information that doesnt include our SSN or EIN).
Could somebody please clarify this for me?
Thanks in advance.
-Jason 
It's my understanding that the seller of the property can write off the interest portion of the mortgage.
You can write off your expenses, upkeep, capital improvements and depreciation.
Please correct me if I'm wrong.
Whoever pays the interest gets the deduction.
If you buy sub2, you pay the payments, principal and interest and YOU take the deduction.
[addsig]
I too was wondering about this a while back. I had done some research and I think WilliamGA is definately right. Here is what I found in IRS publication #535 concerning Business Expenses: Interest.
"Mortgage. Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. "
It is also clear from reading about deducting homeowner's mortgage interest that if the sellers no longer reside at the property, they certainly can't writeoff the interest. So, since someone has to, it should logically be you, the new owner.
I had been concerned that the lender would still be using the seller's social security number on the 1098 that they send to the IRS and to you (they should be sending it to you if *you* if you got the address changed over correctly). Hence the number wouldn't trace back to you.
I had also heard that some people doing sub2's were getting a new Fed. ID# for their trust, and then when they tell the lender that the property's being put into trust, they'd give the lender the new FID# for the trust. That way, when they get the 1098, it has a number that can be traced back to you instead of the seller.
Does anyone do this?
Though, I don't really think it's necessary b/c, like I said above, if you own the property and actually are making the payments, then there's no reason you shouldn't be able to claim the interest expense.
Who ownes the deed? This is the preson who ownes the property. That is where the deductions go. If you have done a change of mailing address to the mortgage company you should get all the mail from that point forward.
Sire
I use the he who pays gets the deduction.
If I sell the property on a land installment, the buyer gets the interest deduction as well as the taxes.
If the lender sends any info addressed to the seller to your new address, I believe it is technically illegal to open it (other people's mail)
That's why I prefer the seperate ID trust or LLC myself, but to make it easy just be sure you make this clear when you purchase and have the seller give you the 1098 when he gets it. If you are audited you can show documentation to IRS. Lender does not know who claims deduction.
[addsig]
What do you do when the original borrower claims the entire deduction or just does not send you the 1098. We prefer to have as much controll over property as possible. Just list your name in "Attention to" in your monthly statements from the bank or lender when you send in the change of address. Do you have a "power of att. concerning re." If so open the mail. Either way the mail is the least of your worries. If the statements and mail are sent to your PO box you have the more controll.
Best to you
Sire[ Edited by sire on Date 12/02/2003 ]