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Archive for Friday, September 15, 2006

Quitclaim deed won’t alter your mortgage

September 15, 2006

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Q: If I sign a quitclaim deed that gives someone else my interest in my home, would I still be liable for making monthly mortgage payments?

A: Yes, you would still have a legal obligation to make the monthly payments - and the lender could still foreclose on the home.

A quitclaim deed merely transfers one person's ownership interest in a property to someone else. It does not transfer the first person's obligation to pay off the underlying loan, nor does it prevent the lender from beginning foreclosure proceedings.

Let's say that the worth of your home is $200,000. If you still owe $75,000 on the loan, you would have $125,000 in equity. If you then quitclaimed the house to someone, that person would own the home and the $125,000 in equity, but you would still be legally obligated to make the payments.

You would owe the bank $75,000, even though you no longer owned the house. And since the property was pledged as collateral for the loan, the lender could still foreclose and ruin your credit.

Q: I bought a duplex earlier this year. I live in one unit, and I treat the other side as a rental. Will the IRS consider the duplex my primary residence or a rental property?

A: The Internal Revenue Service considers your property both your primary residence and a rental, which means you'll have extra paperwork to do when you file your next income-tax return.

Assuming that your duplex is covered by a single mortgage and property-tax bill, you should deduct interest and taxes on your personal share of the property as itemized deductions on Schedule A of IRS Form 1040, just as you would if you lived in a single-family house.

Report the rental income the other unit generates, as well as a prorated share of the property taxes and all your related rental expenses, on Schedule E of Form 1040. Consult a tax adviser for details.

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