Can Co-signers on Mortgages Get Tax Advantages?

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    Mortgage Interest Deduction

    • One of the tax advantages that comes with home ownership is the mortgage interest deduction. This lowers a person's taxable income and thereby their tax liability for the year. When you are a co-signer on a mortgage, you are technically a partial owner of the home. This means that the mortgage interest tax deduction can be available to you as well.

    Paying the Interest

    • Before you can take the mortgage interest deduction, you must actually pay the mortgage interest. You cannot claim the mortgage interest deduction if you do not make any of the payment. For example, if you are simply a co-signer and do not make any of the payments, you will not be able to deduct interest from your income. But if you make some of the payments for the primary borrower, you get to deduct some of the interest on your taxes.

    Capital Gains

    • When you are the co-signer on a mortgage, you may also be able to take advantage of the capital gains tax exemption. If the primary borrower lives in the house for two out of the five years prior to the sale, he can exempt up to $250,000 in capital gains taxes or $500,000 if he is married. Because of this exemption, the co-signer also pays no capital gains taxes.

    Considerations

    • Don't be a co-signer on a mortgage solely for the tax advantages. The risk to your credit if the primary borrower stops making payments outweighs the tax benefits. You will also be responsible for making payments if the main borrower doesn't.

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