Expert: Brian Beardsley Date: 5/9/2008 Subject: mortgage through an individual and not a bank
Question If I where to purchase a second home and wanted to finance part or all of the home using a loan from an individual, how would I then write off the interest? What things do I and the individual have to do to make this happen? Are there any drawback that I should know about to this senario?
Answer Thanks for your question - I need to preface my response by stating that I am NOT an attorney, and I'm not qualified to give legal advice....
If an individual is lending you the money, I'm assuming he/she is going to record a mortgage on the property and you execute a promissary note, specifying the repayment terms, the amount of the loan, and the interest rate, etc.
The grantor (the person lending you the cash) is responsible for issuing you a 1098 form (home mortgage interest paid) at which point, should the interest qualify, you report on Schedule "A" of your Federal Tax return.
I'd advise you to visit the IRS.GOV website and view Publication 936 which spells out the "rules and regulations" for the mortgage interest deduction.
I hope this information is helpful, feel free to post any follow up questions!
