tax ramifications of buying condo for child in college

[malachite]

(I live in Arizona) My 25 yr old daughter is attending college in Florida, and because rents are very high there, my husband and I decided to invest in real estate there (values went up 25% last year; unfortunately not very much this year) and buy a condo for her and her 2 and a half year old child to live in while attending school. We will stay there while vacationing in the area, but not a whole lot. (Does it matter how long we stay there, as we could visit more often if it was to our advantage - we are retired-?). How does this affect our federal income tax? Will it affect her tax? (She has very little income, and is living off of her Pell Grant, a scholarship and child support money. She is paying the condo fees out of that.)

Thanks for your help

[LdiJ]

Originally Posted by malachite

(I live in Arizona) My 25 yr old daughter is attending college in Florida, and because rents are very high there, my husband and I decided to invest in real estate there (values went up 25% last year; unfortunately not very much this year) and buy a condo for her and her 2 and a half year old child to live in while attending school. We will stay there while vacationing in the area, but not a whole lot. (Does it matter how long we stay there, as we could visit more often if it was to our advantage - we are retired-?). How does this affect our federal income tax? Will it affect her tax? (She has very little income, and is living off of her Pell Grant, a scholarship and child support money. She is paying the condo fees out of that.)

Thanks for your help

You treat it as a second family home. You deduct the mortgage interest and property taxes on schedule A. However, since it is not your primary residence, any gain that you have when you eventually sell the home will be taxed as capital gains.

[malachite]

Are there any tax implications because we are allowing our daughter to live there - like having to declare the value of the rent as a gift, or anything like that? (She's not a dependent, as she's 25.)

[LdiJ]

Originally Posted by malachite

Are there any tax implications because we are allowing our daughter to live there - like having to declare the value of the rent as a gift, or anything like that? (She's not a dependent, as she's 25.)

You are allowed to gift up to 12k per tax year to someone, without a gift tax return being required. You and your husband each are entitled to do that.
So, between your daughter, and your grandchild you and your husband combined could gift up to 48k to the two of them. Therefore, I don't think its going to be a problem for you.