Question

IRC § 163(h)(4)(A)(i), Treasury Regulation (Reg.) §1.121-1 and IRC § 280A(d)(1) Rev. Rul. 71-179, 1971-1 CB 58 and Reg. §1.163-1(b). Donald Trapp owns a home that is used as a residence by his children and grandchildren. The children give money to Donald that is less than a fair rent so he can pay the mortgage and property taxes. Write a memo to Donald explaining whether he can deduct the interest and property taxes as an itemized deduction in 2018?

Answer 1

(a) General rule

There shall be allowed as a deduction all interestpaid or accrued within the taxable year on indebtedness.

(b) Installment purchases where interest charge is not separately stated

(1) General ruleIf personal property or educational services are purchased under a contract—

(A)

which provides that payment of part or all of the purchase price is to be made in installments, and

(B)

in which carrying charges are separately stated but the interest charge cannot be ascertained,

then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.

(2) Limitation

In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.

(C) Personal property used in short sale

For purposes of this paragraph, the term “interest” includes any amount allowable as a deduction in connection with personal property used in a short sale

(3) Investment interest

For purposes of this subsection-

(A) In general

The term "investment interest" means any interest allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment.

(B) Exceptions

The term "investment interest" shall not include-

(i) any qualified residence interest (as defined in subsection (h)(3)), or

(ii) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.

(h) Disallowance of deduction for personal interest

(1) In general

In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.

(2) Personal interest

For purposes of this subsection, the term "personal interest" means any interest allowable as a deduction under this chapter other than-

(A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),

(B) any investment interest (within the meaning of subsection (d)),

(C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,

(D) any qualified residence interest (within the meaning of paragraph (3)),

(E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and

(F) any interest allowable as a deduction under section 221 (relating to interest on educational loans).

CONCLUSION:

So As per there is indebtedness as mortgage can be eligible for itemized deduction as interest