Hello all, I have a question about what it means to secure a loan.  I want to loan some money to my son to help him buy a house.  This will be a real loan in that sense that he will pay me the same interest as he's paying the bank for the rest of the loan. I understand that to deduct from his taxes the interest he is paying me, he need to make the loan legally binding .  My understanding of that is that he has to give me or to register a lien against the house in my name (or something like that).  Could someone clarify this issue?   Specifically, what does he need to do to properly record my loan so that he could deduct the interest paid. Thanks in advance, Francois

I have a question about what it means to secure a loan.  I want to loan some money to my son to help him buy a house.  This will be a real loan in that sense that he will pay me the same interest as he's paying the bank for the rest of the loan. I understand that to deduct from his taxes the interest he is paying me, he need to make the loan legally binding .  My understanding of that is that he has to give me or to register a lien against the house in my name (or something like that).  Could someone clarify this issue?   Specifically, what does he need to do to properly record my loan so that he could deduct the interest paid. Thanks in advance, Francois Yes, the loan has to be a binding obligation secured by the house. That means observing all the formalities, because loans within a family are likely to be looked at closely if it ever comes to an audit. It means you will in effect have a lien on his house for the amount you are owed, and it means that the loan documents need to be recorded. This sort of thing is really simple for most law offices, and letting a lawyer do it would save you the hassle of figuring it out yourself and the worry of getting it wrong. If you must do it yourself, there should be standard forms for mortgage loan agreements or deeds of trust in your area; these should be easy enough to follow. Your county recorder should be able to tell you what formalities to observe in getting the agreement notarized and recorded properly. Also, be very, very careful if this loan is for the down payment. Most lenders regard it as fraudulent to borrow any part of the down payment (even from a parent) if you don't tell them. If he represents that the down payment was made out of his own funds, when in fact he borrowed it from you, there are going to be very sticky civil (and maybe criminal) problems down the line.

I understand that to deduct from his taxes the interest he is paying me  This is probably more of a tax question than legal, but what is the advantage of fighting to get that status?  If Junior gets to deduct the interest, then doesn't Dad (who could well be at a higher marginal tax rate) have to declare the interest as income?  (I'm wondering the opposite: is it OK with everyone if Junior does not deduct the interest and Dad doesn't declare it?  The loan could be formal but instead of interest Junior might give Dad a gift

(I'm wondering the opposite: is it OK with everyone if Junior does not deduct the interest and Dad doesn't declare it?   This is answered in IRS publications. It is illegal to fail to report income, and the interest is income to Dad. Sonny, on the other hand, is free to forgo the interest deduction, since no law compels you to take all the deductions you're en_title_d to. But Sonny's tax return and Dad's tax return are for two separate individuals and they can't offset against each other.