What is the name of your state?What is the name of your state? My parents live in Montana, I live in Alaska, and my siblings live in Oregon and Idaho.
My parents recently decided to transfer ownership of their primary home to my two siblings and me. They wanted to do it while still living, and we wanted to get the house at a stepped-up basis, so they simply gifted the purchase money to us ($250,000) rather than gifting the house. We purchased the house at appraised value and my parents filed a gift tax return. My parents continue to live in the house, so they are renting it from us at market rates. We show the rental income on our tax returns. We have been gifting the rent back to them, so there is no net money transfer. To document the rent payments and return gifts, each of us children have simply been recording 1/3 of the "transactions" in memos to our tax files; we don't actually send checks back and forth each month. I have recently read several articles about gifts and renting to family members, and now have two concerns about this arrangement:
1. Does the IRS view either the gift to buy the house, or returning the rent in a gift as abuse?
2. Is the memo enough to demonstrate to the IRS that my parents are renting and we are gifting, or do we need to actually send the checks back and forth?
My parents recently decided to transfer ownership of their primary home to my two siblings and me. They wanted to do it while still living, and we wanted to get the house at a stepped-up basis, so they simply gifted the purchase money to us ($250,000) rather than gifting the house. We purchased the house at appraised value and my parents filed a gift tax return. My parents continue to live in the house, so they are renting it from us at market rates. We show the rental income on our tax returns. We have been gifting the rent back to them, so there is no net money transfer. To document the rent payments and return gifts, each of us children have simply been recording 1/3 of the "transactions" in memos to our tax files; we don't actually send checks back and forth each month. I have recently read several articles about gifts and renting to family members, and now have two concerns about this arrangement:
1. Does the IRS view either the gift to buy the house, or returning the rent in a gift as abuse?
2. Is the memo enough to demonstrate to the IRS that my parents are renting and we are gifting, or do we need to actually send the checks back and forth?