Intra-Family Mortgage: Recording Is Part of the Test

Updated August 3, 2026. Quick answer: if the borrower wants to deduct the interest, a handshake will not do it. The IRS’s own definition of secured debt requires the instrument to be recorded or otherwise perfected under state law — so recording is not a precaution here, it is part of the test.

What the statute requires

IRC 163(h)(3)(B)(i) defines acquisition indebtedness as debt incurred in acquiring, constructing or substantially improving a qualified residence AND secured by that residence.

And what the IRS means by “secured”

A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt; Provides, in case of default, that your home could satisfy the debt; and Is recorded or is otherwise perfected under any state or local law that applies.

Recording or perfection is built INTO the IRS’s own definition of secured debt. It is not merely a practical precaution, and nothing carves out family or private lenders – the same test applies whoever the lender is.

This is the step families skip, and it is the one that decides the deduction. A promissory note between parent and child is a debt; it is not a secured debt until there is a mortgage or deed of trust against the home, recorded where that state records them.

The other conditions

• Qualified residence — the main home or one designated second home.
• Acquisition indebtedness — incurred to buy, build or substantially improve that home. Money borrowed for something else does not qualify however it is secured.
• The limit — $750,000 of acquisition indebtedness, $375,000 married filing separately, for debt incurred after 15 December 2017.

The lender’s side, which families forget

Interest received by a family lender is ordinary taxable interest income, reportable whether or not any form is issued.

So an intra-family mortgage is not a way to move money without tax consequence. It moves a deduction to one side and income to the other, and whether that is worth doing depends on the two marginal rates.

Paperwork: who issues what

A family lender is generally NOT required to issue Form 1098. Section 6050H applies only to a recipient of $600 or more who is engaged in a TRADE OR BUSINESS of receiving mortgage interest, which an individual making a private family loan ordinarily is not.

Publication 936 instructs that mortgage interest not reported on Form 1098 is deducted on Schedule A with the lender’s name, address and taxpayer identification number shown on the dotted lines next to line 8b.

That instruction is textually given for seller financing. Its extension to a family lender who was not the seller is the reasonable reading but is not textually explicit, and is flagged as medium confidence.

The practical consequence is that the borrower needs the lender’s taxpayer identification number, which is a conversation worth having when the loan is made rather than at filing.

What this takes, in order

1. A promissory note with principal, rate and schedule.
2. A mortgage or deed of trust against the property, in the form that state uses.
3. Recording it with the county. This is the step that satisfies the IRS definition.
4. A rate at or above the applicable federal rate for the term — where that comes from.
5. Actual payments, traceable, on the schedule.

Steps two and three usually want a local real-estate lawyer, and that is money well spent against the size of the deduction at stake.

The wider tax rules on family loans · why this is not the same as helping with a down payment.

General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month – never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.