Can I pay mortgage interest... to Myself?

I own my home outright, but I’d like to take the mortgage interest tax deduction.

How easy is it to put in place a legal structure that would allow me to pay myself (or family members) mortgage interest and legally deduct it on my return?

Can I simply create my own mortgage or bank company? Is it possible to do this as a corporation or a limited partnership?

I guess if it’s a matter of filing some forms with the state, then I’d definitely want to look into it. But if it involves getting a license and paying lots of fees, then it’s probably not worthwhile.

Well, the problem is that the interest you’d pay to yourself would be taxable as interest to the corporation you’d set up. It isn’t like the corporation won’t pay taxes…

So you’d end up filing taxes twice and it wouldn’t save you any money. Plus, I’m guessing the IRS wouldn’t look kindly on it as a tax dodge and you might go to jail.

Interesting… however, it could shift income to other family members in lower brackets. And the corporation could offset some of the profits with its own deductions.

Hmm, I also wonder if people set up corporations where the tax year starts at a different time (say, June) and they shift the tax back and forth. Not really sure how that works, though, but it’d be nice if there was a way to keep putting it off.

But you only get to take deductions on money spent. So lets say you have $200 in professional fees for your corporation, you get to write that off, at whatever the corporate tax rate is, But you are out the $200, get to write off 18% (or whatever). Creating expenses so you get deductions is no way to make money.

Plus, it isn’t going to be legal in the end.

Actually, there are many perfectly legal ways to take corporate deductions. Travel costs for stockholder meetings, for instance.

OTOH, the IRS notoriously frowns on “sham” transactions.

Yes, but then you have to pay for the travel. Everyone still saves money if you hold the stockholder’s meeting close by.

As Dangerose points out, creating expenses to find deductions is simply nuts.

In any event, if you pay yourself mortgage interest you have to be able to show the IRS you actually borrowed the money, or had some sort of capital transfer, between yourself and the person/holding corporation you pay the interest to. Shifting the income from one party to another and then claiming the interest payment is going to attract the attention of the IRS, who’ll raise the (perfectly legitimate) question as to what it is you’re paying back. If you can’t show that you actually borrowed money, the interest payments are invalid and you’re in trouble.

Cartoon in Playboy many years ago. A man getting audited. revenue agent says problem is you are taking deductions like you are a somebody whereas you are a nobody.

Couldn’t you just get a cheap mortgage, and dump the proceeds into something that generates a better-than-your-rate return? Then you have your equity working for you, and you also get that mortgage deductions.

It constantly amazes me how often people shrug off expenses, or even seek to increase them, by appealing to the fact that they will get more tax deductions.

Do people not understand how tax and tax deductions work?

IANA financial advisor, but I think that A) it will be hard to find an investment that reliably pays more than current mortgage rates, meaning that you might lose money, and 2) you’ll have to pay taxes on any income earned from the investment, meaning that even if you earn more than the mortgage rate, you might lose money. Or so it seems to me. I mean, if your suggestion really worked, why wouldn’t we all be doing it and be rich?

I think commasense hit the nail on the head. Lotsa good reasons I want to earn the mortgage returns. So, going back to getting the deductions part… is that easy or hard? Can I just say I am a bank, or do I need to set up a company or corporate entity? And do I need licenses and such? FDIC? What’s the minimum qualifications for a banking entity in order to legally claim mortgage interest deductions?

What the OP is suggesting is the financial equivalent of the perpetual motion machine. Regardless of whatever legal hocus-pocus you might do, this is an effort to establish a mechanism for the sole purpose of avoiding taxes, which is not allowed (might be downright illegal but IANAL).

I don’t want to put words in his mouth but I think the rationale here might be to take the family to Disneyland and then deduct the cost as a “stockholders’ meeting.”

Once I saw a newspaper article about an Amway distributer who got into some deep shit with the IRS for deducting virtually all of his personal expenses as “business expenses.” The list of what he deducted was downright comical. Things like dog food as “security system maintenance” and a family visit to his mother-in-law’s in Florida as a business expense, because at some point they discussed his Amway business.

There could be advantages to setting up a corporation and transferring ownerhsip of your house to the corporation. However, I don’t think the tax writeoff on mortgage interest is one of them, and if you’re the sole owner of the corporation, it’s gonna take the IRS about 12 seconds to figure out your motivation.

Well, I am not suggesting transferring ownership of the house to the corporation. In Texas, I am better off holding the title. I am suggesting creating a mortgage loan that is owned by a corporation and that I would make monthly payments for.

This is clearly okay when using a normal bank. The question is whether it is okay to deduct the interest if the corporation is essentially me and my family members.

As far as deducting business expenses for travel, it is perfectly legal to couch what is essentially a vacation as a stockholder meeting as long as you follow the rules. In the examples of people getting into deep trouble, those people are also breaking rules.

I think just about everyone in this thread has told you that it is[list=a]
[li]Not OK[/li][li]Probably illegal[/li][li]Not economically viable[/li][/list] but you’re not listening.

Well, maybe I’m wrong. But most of the posters are expressing opinions, not citing facts. Clearly this is okay if I’m dealing with a bank. I can own stock in this bank… still okay. At what point do you assert it becomes not okay? Cite?

IIRC there is a way of doing this, something about buying (and refinancing?) a home by borrowing money from your retirement account. Paying back your retirement account with interest. I really don’t know the details though.


I’ve got that option with my 401K.
I ran the numbers, and the tax implications of doing it would require me to be downright stupid to choose the option.
My 401K yields are higher than my mortgage rate.