But what if someone else makes some or all of the mortgage payments? Who gets the deduction? I can think of three answers to this question, depending on the situation involved.
If the person making the payments is a co-owner of the property and is also on the mortgage loan, then the taxpayers will need to split the deduction amongst themselves. The deduction should be split based on how much interest each person actually paid.
If the person making the payments is not a co-owner of the property, then that person cannot take the deduction. The mortgage interest deduction is only available to people who own the property and who are legally liable for repaying the loan (that is, are the borrowers on the mortgage loan). That means the owner would take the deduction for the mortgage interest. The person making the payments is doing so as a gift, (for example, a daughter helping her mom with the mortgage payments) then there might be some gift tax reporting to do if the total gifts during the year exceed $12,000 per recipient.
Finally, if the person making the payments is living in the house and isn't a co-owner, this would be considered rental income for the owner of the house. The owner would report the rental income and mortgage interest. The tenant would not get a deduction.
Resources from the IRS Web site: