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Discussion Forum Index --> Tax Questions --> Rental Property to Related Party Property Rental?
FLAcct (talk|edits) said:
| 16 August 2007
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| I have a client you bought a rental house in 2005 and rented it to an unrelated party for a year. Then halfway into 2006 one of her daughters moved into the house and is now paying the mortgage payment on the house (although the mortgage and the house are still in the mother's name). It is their intention that this procedure will continue for a year or two until the daughter can afford to have the financing put into her name at which point the mother will gift the house to her. In the meantime, would this house continue to be a rental house on the mother's tax return with the mortgage payments the daughter has been paying equal to the rent income? I believe the mortgage payment is at least as much as the mother was receiving from the unrelated tenant.
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Taxref (talk|edits) said:
| 16 August 2007
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| Others may have a different opinion, but it sounds as though the daughter is now the beneficial owner. That would result in no rental income/expense to Mom, while daughter takes the Schedule A deductions.
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WesR (talk|edits) said:
| 16 August 2007
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| Hi if the mortgage payment reflects close to FMV say at least 85% you can continue to treat the arrangement as a rental. If the family member uses the property as a personal residence you avoid the vacation home rules and the IRS does allow a reasonable rent discount. bye
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Solomon (talk|edits) said:
| 16 August 2007
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| If daughter has assumed the burdens and benefits of ownership, (as it appears she has) I vote with Taxref. No more banana balls today Wes.
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WesR (talk|edits) said:
| 17 August 2007
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| Hi sorry I have been taking lessons and the banana ball has disappeared. But I must disagree just because you have a family tenant doesnt mean shes the new "owner". This is a common occurance and I bet you a coffee and donut the daughter doesnt have the financial ability to be the "beneficial" owner. Its a rental for me until the daughter takes legal title. :) bye
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Solomon (talk|edits) said:
| 17 August 2007
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| Glad the banana ball is gone Wes. Granted that a family tenant does not make the tenant in of itself a beneficial owner. On the other hand, if the daughter is paying the mortgage directly to the lender as well as all other expenses of the house then I think that leans toward beneficial ownership - especially because it is merely a credit problem with the daughter.
Equitable or Beneficial Ownership.
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WesR (talk|edits) said:
| 17 August 2007
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| Hi I understand the concept etc but my coffee and donut still stands. Its a facts and curcumstances issue and I await to hear from FLAcct. bye
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Solomon (talk|edits) said:
| 17 August 2007
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| Agree about circumstances and facts - a few more needed. By the way, I got rid of my banana ball by not cocking wrists early on the backswing.
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WesR (talk|edits) said:
| 17 August 2007
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| Hi I think in golf if you can believe this, we can get more different answers to fixing problems than some or our creative writers get here in changing the facts all the time. :) bye
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Kevinh5 (talk|edits) said:
| 17 August 2007
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| Can someone tell me what this "banana ball" is?
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Solomon (talk|edits) said:
| 17 August 2007
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| Kevin - start playing golf and you will probably know after your first swing with a driver. It is a ball that during flight goes to the right (right hand golfer) because of hitting the ball with an open club face which puts clockwise spin on the ball. Now, are not taxes less complex?:) There are more nuances to this, but that is the crux of it.
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Kevinh5 (talk|edits) said:
| 17 August 2007
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| Thank you. I like banana splits better, but I'm not convinced taxes are less complex than golf.
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FLAcct (talk|edits) said:
| 17 August 2007
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| My first thought was to leave it as a rental property and the amount of the mortgage payments paid by the daughter would equal the rent income. This is what I would prefer to do because it would result in some losses for my client. But then I was concerned that this fails the profit motive necessary for a rental property. The mother is not trying to make a profit from the rent income, nor is she trying to make a profit when she disposes of the house because she will just be gifting it to her daughter. So then I thought I had two remaining alternatives and am not sure which is correct: 1) report the amount of the mortgage payments paid by the daughter as other income on Line 21 of the 1040 and the amount of mortgage interest/real estate taxes on Schedule A under misc itemized deductions; or 2) not report any rent/other income and not deduct any mortgage int/RE taxes on Schedule A (for the months the daughter lived in the house). What do ya'll think?
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Solomon (talk|edits) said:
| 17 August 2007
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| 1) No. 2) Does not make sense. Is the mortgage payment close to the fair market rental value?
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Solomon (talk|edits) said:
| 17 August 2007
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| Then it is not considered personal use by the mother so stick with your preference.
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TexCPA (talk|edits) said:
| 17 August 2007
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| Get a signed lease agreement from the daughter, to keep as rental.
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