How Do I Refinance a Mortgage and Deduct Interest on My Taxes?
Full Question:
Answer:
A person may be removed from a mortgage by payment in full of the mortgage (satisfaction), assumption of the mortgage payments by another person and release of the original mortgagor, release of you from the mortgage by the mortgage company and possibly other methods. A release of one mortgagor before the debt is fully paid is not commonly done by mortgage holders, but is done under certain circumstances.
Once a mortgage or deed of trust is paid, the holder of the mortgage is required to satisfy the mortgage or deed of trust of record to show that the mortgage or deed of trust is no longer a lien on the property. The general rule is that the satisfaction must be in proper written format and recorded to provide notice of the satisfaction. If the lender fails to record a satisfaction within set time limits, the lender may be responsible for damages set by statute for failure to timely cancel the lien.
The Internal Revenue Service (IRS), as of 2007, takes this position in regards to gifts:
"Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift."
For further discussion, please see:
http://ftp.irs.gov/pub/irs-news/at-04-38.pdf
http://www.irs.gov/taxtopics/tc504.html
http://www.irs.gov/publications/p936/ar02.html#en_US_publink100037111
http://www.irs.gov/businesses/small/article/0,,id=112482,00.html
I suggest contacting the local IRS office to inquire about specific interest rates for reduced-interest loans to qualify as gifts, as rates vary over time.
