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Q: Tax deduction for 3rd loan on home ( Answered,   0 Comments )
Subject: Tax deduction for 3rd loan on home
Category: Family and Home > Home
Asked by: machouse-ga
List Price: $50.00
Posted: 02 Aug 2005 16:16 PDT
Expires: 01 Sep 2005 16:16 PDT
Question ID: 551006
I am currently remodeling a home in Northern California. I have
established a HELOC to help finance the project. My mother in law
would like to loan us the money to remodel before we have to use the
HELOC. I have the following questions about this transaction:
1) What documents do I need for this transaction to make the interest
tax deductible?
2) Are there filled out examples of these documents if possible?
3) What do a need to record with city, county or state?
4) Where can I get the documents?

Request for Question Clarification by wengland-ga on 16 Aug 2005 10:52 PDT
You have a primary mortgage now, and a secondary, correct?

Is the HELOC the second mortgage?

Would the Mother in Laws' note be the third mortgage, or would it be the second?

Clarification of Question by machouse-ga on 16 Aug 2005 11:15 PDT
The Mother in Law's note would be the third mortgage. I hace the HELOC
setup complete but I have not drawn any funds from it at this time.
Subject: Re: Tax deduction for 3rd loan on home
Answered By: wengland-ga on 16 Aug 2005 12:57 PDT

To begin, Google Answers cannot provide tax or legal advice, and all
tax or legal matters should be addressed by your attorney and / or

Generally speaking, to make mortgage interest tax deductable, you must
have a debt secured by your home.  Either a mortgage or deed of trust
filed with your county registrar of deeds will serve.  The deed of
trust is much simpler to fill in.  A blank one is available at:

Simply copy and paste into Wordpad, fill in the blanks, print, sign
and have notarized, and take to your county courthouse for filing. 
You may also contact the county courthouse to see if any other
locale-specific paperwork must be done.

The home must be your primary residence, the deductable interest is
only up to the value of your home, the money must be used to improve
or buy the house and several other qualifications outlined in IRS
publication 936:

If the interest is more than $600 per year, your mother in law will
need to provide you with a form 1098, available from the IRS website

This form shows the exact amount of interest you paid to her on your
mortgage.  You will report that amount on Schedule A of your 1040
income tax return.

Your mother in law should also contact her accountant to determine how
to claim the interest income from the loan to you.

So to summarize, you will 
1) Fill in a Deed of Trust
2) File with the County Registrar of Deeds
3) Use the money to fix the house
4) Pay the mortgage
5) Receive a form 1098 from your mother in law
6) Claim the mortgage interest deduction on Schedule A of form 1040.

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Request for Answer Clarification by machouse-ga on 22 Aug 2005 12:51 PDT
It has taken awhile to read through the various documents. Questions:

1) Who should be identified as the "Trustee" in the Deed of Trust Document.

2) When I record this Deed of Trust are there any conditions or impact
to my primary loan or HELOC?

Clarification of Answer by wengland-ga on 23 Aug 2005 12:19 PDT
"1) Who should be identified as the "Trustee" in the Deed of Trust Document."

The person or entity with a security interest in the property -- in
this case, your mother in law.

"2) When I record this Deed of Trust are there any conditions or impact
to my primary loan or HELOC?"

I do not know.  That depends on what is written in the contract for
your first or second mortgage.  Generally speaking, (again, Google
Answers cannot provide specific legal advice) there would be no impact
to the other lenders.  However, they may have written into your
contract language about additional liens or deeds of trust being
placed on the property. I would suggest taking the loan documents for
your first and second mortgage if you have further questions about
your specific loans.
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