Quote from @Ashish Acharya:
@Justin Summers Yes, your mother can still claim the mortgage interest deduction since she holds legal title and makes the payments, even though the 1098-INT is issued to the prior owner. Ideally, the prior owner should issue a nominee 1098 to your mother and include a statement with their return noting her as the interest payor. If that’s not possible, your mother should attach a brief statement to her return explaining that she holds title and made the payments, while the 1098 was issued under the seller’s name. This creates a paper trail to support the deduction.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
Just for clarification Ashish, here is a great AI explanation:
Legal Title vs. Equitable Title in Real Estate
Legal Title
Legal title represents the formal ownership of real property as recognized by law and recorded in official documents. Key characteristics include:
- Formal recognition in public records (deeds, titles, registrations)
- Right to control the disposition of property through sale, transfer, or encumbrance
- Standing in courts of law to defend property rights
- Power to convey the property to others through legal instruments
- Name appears in property tax records and other official documents
- Ability to grant mortgages, easements, and other legal interests
Legal title holders possess the formal "paper ownership" that is enforceable through legal action in courts of law.
Equitable Title
Equitable title represents the beneficial interest or right to enjoy and use property, even if someone else holds legal title. Key characteristics include:
- Right to use, possess, and enjoy the property
- Entitlement to any income, profits, or benefits derived from the property
- Beneficial ownership interest even without formal legal documentation
- Right to compel transfer of legal title under appropriate circumstances
- Protected by courts of equity rather than courts of law
- Often based on principles of fairness and intended ownership
Equitable title holders possess the actual beneficial enjoyment of the property, even if they don't appear as owners in legal records.
Common Situations with Split Title
- Land Contracts/Contracts for Deed: Buyer has equitable title while seller retains legal title until final payment
- Trusts: Trustee holds legal title while beneficiaries hold equitable title
- Real Estate Purchase Agreements: Between signing and closing, buyer has equitable interest while seller retains legal title
- Nominee Ownership: Legal titleholder acts as nominee for equitable owner
- Life Estates: Life tenant has equitable title to use during lifetime while remainderman has future legal interest
- Foreclosure Redemption Periods: Borrower retains equitable title during redemption period
Legal Significance
The distinction between legal and equitable title has significant implications in property disputes, tax matters, bankruptcy proceedings, and estate planning. Courts may recognize and enforce equitable title claims even against legal titleholders when equitable principles such as unjust enrichment, constructive trusts, or specific performance apply.
In summary, legal title represents formal ownership recognized by law, while equitable title represents the beneficial interest to use and enjoy the property. Both forms of ownership carry significant rights that courts will protect in their respective jurisdictions.