Can You Use a Trust Account House Payment for Your Tax Write Off?

by Amanda McMullen

Placing your home in a trust is a valuable estate-planning tool for avoiding probate, but it can be confusing for tax purposes. In many cases, you can use your house payment for a tax deduction even if the home is in a trust. However, you may not qualify for this deduction if the trust is irrevocable.

About Trusts

A trust is a legal arrangement you can use to hold your assets until you die. There are two types of trusts: revocable and irrevocable. A revocable trust, or living trust, is an arrangement that the grantor can break at any time. On the other hand, an irrevocable trust is virtually unbreakable. After the grantor signs the trust documents, he forfeits ownership of the property the trust holds.

Taking the Deduction

If you place your home in a revocable trust, you remain the owner for tax purposes. As long as you qualify, you can continue to deduct mortgage interest payments as if the home were in your name. However, if you transferred ownership of your home to most types of irrevocable trusts, you cannot deduct mortgage interest for the home. The Internal Revenue Service considers an irrevocable trust to be a separate taxable entity.

Qualified Personal Residence Trust

A qualified personal residence trust is the only irrevocable trust that allows you to continue taking deductions for mortgage interest payments. To create a qualified personal residence trust, a grantor transfers the ownership of his home to the trust but retains exclusive use of the residence for a specified term. If the grantor is still alive when the term ends, the house transfers to another trust or to named beneficiaries.

Considerations

Though placing your house in a revocable trust or a qualified personal residence trust doesn't prevent you from claiming a tax deduction for mortgage interest, you must still meet the qualifications published by the IRS. To qualify for a mortgage interest deduction, the home securing your mortgage must be your main home or second home. You must also itemize your tax deductions in order to deduct mortgage interest from your taxable income.