Buying a home for your children with a mortgage: the tax aspects you need to know

Helping a child purchase their first home is one of the most significant steps a family can take. When the purchase is supported by a mortgage — in the child's name, the parent's name, or held jointly — a series of tax rules come into play that are worth understanding before proceeding. There are several variables, and they depend on who takes out the mortgage, who is the registered owner of the property, and how it will be used.

Who buys and who pays the mortgage: an important distinction

The first point to clarify is whether the mortgage is taken out in the child's name or the parent's. In the most common scenario, the child purchases the property and the parent acts as guarantor or co-obligor. In this arrangement, the deduction of mortgage interest is, as a rule, available to whoever is both the borrower and the owner of the property. If, on the other hand, the parent is a co-holder of both the mortgage and the property, the deduction is split between the parties in proportion to their ownership share.

A different case is when the parent purchases the property in their own name and then makes it available to the child. Here everything changes: the first-home tax benefit tied to the child's primary residence does not apply, and the purchase taxes are calculated at the ordinary rates, unless the parent themselves meets the requirements for the first-home benefit.

The first-home benefit and the child's eligibility requirements

If the child purchases in their own name and meets the requirements — residency in the municipality where the property is located within a set period after the purchase, and no other properties purchased with the same benefits anywhere in the country — they can access the reduced registration tax, which is normally significantly lower than the ordinary rate. For purchases from developers subject to VAT, the reduced first-home VAT rate is likewise lower than the full rate.

• The child must transfer their residency to the municipality where the property is located within the timeframe set by law.
• They must not own, even in part, another property purchased with the same benefits.
• The property must not fall within the luxury cadastral categories (A/1, A/8, A/9).
• The requirements must be met at the time of the deed of sale, not before.

Tax deductions on mortgage interest

The borrower is generally entitled to deduct from their personal income tax (IRPEF) a percentage of the interest paid on the mortgage loan, up to an annual limit defined by law. The deduction applies when the mortgage is taken out to purchase the primary residence. If the mortgage is held jointly by parent and child, each deducts the interest in proportion to their share. It is important to keep all bank documentation and to declare the shares correctly in your tax return.

When the parent pays the mortgage on the child's behalf

It often happens that the parent, while not a co-holder of the mortgage, actually pays the instalments on the child's behalf. From a tax standpoint, in this situation the parent generally cannot deduct the mortgage interest, because the mortgage is not in their name. The child, on the other hand, could in theory deduct the interest even though the parent pays the instalments, but this is an area where interpretations can vary: it is essential to review your specific situation with an accountant.

Gifting money for the purchase: what changes

An alternative to a parental mortgage is gifting a sum of money to the child, who then makes the purchase and takes out the mortgage in their own name. Gifts between parents and children benefit from a high exemption threshold before gift tax applies: as a rule, modest amounts do not trigger taxation, but it is prudent to formalise the gift — or at least the origin of the funds — to avoid problems later in the event of a tax audit or future inheritance proceedings. A notary can advise on the most appropriate form depending on the amount.

If you are considering a purchase in the Todi area or in the neighbouring Umbrian municipalities, the local property market has characteristics of its own — prices, property types, average transaction times — that also influence tax and financial decisions. For any questions on how to structure the transaction correctly, we are happy to offer you an initial consultation: we have been working in this area for years and collaborate with local professionals — notaries and accountants — to whom we can refer you for detailed checks.