Discussion:Renting a home you don't own

I know client cannot take the 1098 expense because he is not legally liable for it. But he does generate income, where do I claim this? I could put it on Sch E, with no expenses, though he does have receipts for things such as blinds installed in these homes etc. It is passive, so I am thinking line 21 on the 1040 won't work. I have not done any of his returns, but am representing him in an audit. The last preparer, didn't claim any of this other income, and only claimed 4 of his homes. Any guidance on this would be appreciated. I have explained to him that even though he made the payments and there were in excess of rent received, he will still have to claim the income. Thanks

The statement about the last preparer fascinates me.

The Sch C she dreamt up was due to some broker co-op commissions he received. It seems the seller, developer etc. pays an incentive up front, although that amount is added to his purchase price of the home. Example. Buyer buys for 500k, there is a 5% commission involved. At closing there is a check to a broker for 25k, broker takes a few % off, and issues a check to buyer for the remaining amount. Mortgage is for 525k. I have spoken with one of the brokers to understand the process. Since the buyer is paying for that money in his mortgage, I think it would be similar to someone pulling out $$ during a refi. No tax consequence. But the broker, not knowing what to do issues 1099s. These total 385k. So preparer says she was looking for deductions against them so client wouldn't owe so much in taxes. I am not convinced the 1099s were taxable to begin with. There are even more issues with the return, but I don't have time to list them all. It is a big mess. KathiJud, client did not get any management fee of any kind. It cost him more than he brought in with rental fees. He (and the relative) consider the home to be owned by my client. It was "just" in someone elses name. Client did all the work, paid all the bills etc. made no profit EXCEPT I don't think he can claim any deductions. SO just need to know if I put it on a C or an E, and what in the world would I call this kind of "business?".

1. He has made gifts to the named family members

2. He has not paid gift taxes.

3. Thus he has no basis in these properties.

I agree with KathiJ that has to be treated as "property management job."

4. He should give each family member "losses/gains/deductions" statements to their rightful owners (so they may report it on their SchE). He may take a mangement fee, if there is a profit to be had or if the family members pay him for it. (I know over his dead body.)

It's difficult to determine whether he is an equitable owner or property manager without knowing why he does this. Has he ever said why?

I found this tax court case based on information from another forum question. Pages 15-17 seem to indicate he might actually be able to deduct the mortgage interest and property taxes. 

Feedback is sure appreciated. I haven't yet managed to find anyone that I am connected to that has experienced this.

The court case I was referring to is here http://www.ustaxcourt.gov/InOpHistoric/TRANSDAN.TCM.WPD.pdf I guess I am tired and forgot to send it. How can I tell if this case can be used to argue his case to the auditor? Thanks again

"How can I tell if this case can be used to argue his case to the auditor?"

The types of authority are listed in §1.6662-4(d)(3)(iii). A court case is a type of authority.

But let's just focus on the Milpita property, the parents lived in the property and son transferred the deed to the place by year end. Don't these facts bolster their claim for equitable ownership, over this situation. (BTW the IRS made a technical blunder, by not making sure that parents had paid the taxes themselves. Judge disallowed IRS from verifying that during the trial.)

Would the case be as strong for rental property which neither 'Uncle Ben' or 'Nephew Jerry', if neither lived in the property.

Would not this be a sly way of transferring property from Uncle Ben to nephew? At his death, Uncle Ben's equitable ownership melts away like fog. Only the deed with the nephew's name remains.

http://www.taxalmanac.org/index.php/Discussion:Rental_Income/Expenses:_Can_LLC_report_these_if_they_do_not_own_the_property_or_mortgage%3F

Hopefully, we will get back to community banking (meaning W-2 loan officers and NOT mortgage brokers), where they hold the loans to term and do proper underwriting, and start policing some of this "alleged" fraud.

Uncle Ben buys a rental building put its under Nephew Jerry's name. Jerry's 21 he don't give a rip and signs a hand written agreement giving his uncle all rights to the rental. Uncle Ben keeps it in his safe. If the IRS questions his 'gift', he just claims equitable ownership. When the mortgage is paid off, Uncle Ben says "Jerry, you really turned your life around. Let's burn this little agreement and the building is yours." So they light up their cigars, take a deep puff and exhale contentedly.

Anybody know anything about broker co-op comissions? This guy got 385,000 in refi money and co-ops. Since all money received was added onto existing mortgages, can it really all be tax-free when received?

They have to use strawmen because they are "loaned-up" to begin with, but they know the system, and they can get these people the loans. Also, since the TP cannot "owner-occupy" all these homes for the best rates, he sets his relatives and others up as strawmen, and has them show as owner-occupants.

It's a form of mortgage fraud, some would say.

"I keep thinking, if only he had waited another year and started buying up homes at today's prices." Today's prices are today's prices because the homes are worth less. And when they do inch up, they inch up in terms of a debased dollar. IT'S ILLUSORY.

All this recovery is with a debased dollar. Though I do agree that inflation would be much worse if so many of those dollars had not simply disappeared (but dollars don't really just disappear). We shall see; if we don't get some serious inflation fairly soon, then that could actually be a sign that we could end up with a severe double dip (further deflation). So, tell him to hold on, it's a possibility he can pick those houses up even cheaper than they are today.

If inflation does take hold, it will be a tough period, because the Chinese will still keep our wages down.* Hence, we will be subject to inflation, with no way to get a real increase in pay.

.*I should say the Chinese; and the H1B visa which just imports the cheap educated labor straight to America.