Discussion Question 6-22 (LO. 3)

Ray loses his job as a result of a corporate downsizing. Consequently, he falls behind on the mortgage payments on his personal residence. His friend Sahar would like to make the delinquent mortgage payments for him.

1. Could the payments be structured so that Ray can deduct the mortgage interest?

For Ray to deduct the interest:

a. Sahar should give the money to Ray so that Ray pays the mortgage company.

b. Sahar should pay the mortgage company directly on Ray's behalf.

c. There is no way to structure the payments so Ray can deduct the mortgage interest since it is a gift from Sahar.

2. Could the payment arrangement deny both Ray and Sahar a mortgage interest deduction?

For neither Ray nor Sahar to deduct the mortgage interest:

a. Ray pays the mortgage company directly.

b. Sahar pays the mortgage company directly.

c. There is no way to structure the payments to deny both Ray and Sahar a mortgage interest deduction.

3. Could the payments be structured so that Sahar can deduct the mortgage interest?

For Sahar to deduct the mortgage interest:

a. Ray pays the mortgage company directly.

b. Sahar pays the mortgage company directly.

c. There is no way the payments can be structured so that Sahar can deduct the mortgage interest.