Tax consequences for kids buying moms house

[msingleman]

What is the name of your state? Louisiana

What is the name of your state? Louisiana but she and the house are in Texas.

She is paying the mortgage payment. We had to purchase this as investment property because it is not our residence. We bought it to help her use the money left over from the sale to payoff all her credit. Otherwise we would have had to send her 500+ each month just so she could pay bills. She is basically renting from us.

What will this do to our taxes? My husband and I usually get back money. She has paid the new mortgage 4 times this year Sept-Dec @500 a month. We are concerned we are missing something here.
Please help.

[seniorjudge]

Originally Posted by msingleman

What is the name of your state? Louisiana

What is the name of your state? Louisiana but she and the house are in Texas.

She is paying the mortgage payment. We had to purchase this as investment property because it is not our residence. We bought it to help her use the money left over from the sale to payoff all her credit. Otherwise we would have had to send her 500+ each month just so she could pay bills. She is basically renting from us.

What will this do to our taxes? My husband and I usually get back money. She has paid the new mortgage 4 times this year Sept-Dec @500 a month. We are concerned we are missing something here.
Please help.

More info:

[url]http://forum.freeadvice.com/showthread.php?p=1541924&posted=1#post1541924[/url]

[LdiJ]

Ok....this is confusing but let me see if I understand what you are saying.

You purchased your mother's home from her, at fair market value, and she is now renting the home back from you, is that correct?

Is she paying a fair market rent?

If so, then you would report the rental income on schedule E, and would including the rental expenses. In your case, that would predominantly be the interest you are paying on the mortgage.

[msingleman]

will that help or hurt us in the end?

[LdiJ]

Originally Posted by msingleman

will that help or hurt us in the end?

It will increase your income (by the difference between the monthly interest and the rent your mother is paying), and odds are that won't be a great deal. However, any increase in your income results in an increase in your taxes.

For example, if you are at a 25% marginal tax rate, and you net 200.00 a month from the rental, then you will have an additional 2400.00 in income for the year, and therefore will owe an additional 600.00 in tax.

[msingleman]

Thanks for the help. That gives us a good idea where we will stand when we see our tax preparer.

[seniorjudge]

Originally Posted by msingleman

Thanks for the help. That gives us a good idea where we will stand when we see our tax preparer.

Another FA satisfied user!