Can Mortgage Lender Get Tax Deduction?

Added December 2, 2008 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: If you become a mortgage lender to a home buyer can you take a tax deduction? Generally no. Mortgage related tax deductions may be taken by home owners or home buyers, not home sellers or mortgage lenders. Try consulting an IRS publication or a tax advisor to find out more about mortgage lenders and tax deductions.

Q: In a case where a homeowner is acting as the "bank or finance company" in a real estate sale; who gets the tax write-off? The person purchasing the home or the home-seller/financier?

A: Typically, the tax benefits flow to the person who owns or has an ownership interest in the property. In general, the home buyer gets the benefit of deducting the mortgage interest on the loan under most circumstances.

In a situation like the one you describe, the lender does not generally get these benefits. So, if a homeowner sells his home and then becomes the lender to that buyer, the buyer gets the tax benefits for the payment of the real estate taxes from and after the closing date.

The IRS has certain rules relating to the payments made at closing and who gets what benefit from payments made at the closing. For more details on the closing payment issue, you can take a look at Publication 523 "Sale of Your Home."

Please talk to a tax advisor for more details.

Dec. 2, 2008.

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