Tax question: Buying a rental from my parents

[xylene]

Did the parent claim the rent as income?

 

[Taxing Matters]

Did the parent claim the rent as income?

The answer appears to be yes:

Meanwhile, my parents claimed the house on their taxes as a rental, thus depreciating the home.

To do that, they had to claim the payments made as rental income on their return. That's part of the reason why I say it appears all the documentation here points not to a sale, but to a rental followed by a gift of the property.

 

[FlyingRon]

Could have been a lease-purchase if set up that way. Nothing prevents a landlord from applying rental payments toward a purchase.
But again, it really doesn't matter. Even if they had a purchase contract and a real mortgage, selling the house for less than half what it is worth to relatives is going to be considered to be a substantial gift.

 

[Taxing Matters]

Could have been a lease-purchase if set up that way.

I agree that they they could have set it up that way. Again, though, they'd need an enforceable contract to make that work.

Even if they had a purchase contract and a real mortgage, selling the house for less than half what it is worth to relatives is going to be considered to be a substantial gift.

That's true too.

 

[Ohiogal]

You are buying the house, not selling it, therefore you won't be reporting anything about it on your taxes this year except perhaps the mortgage interest and property taxes that you are basically paying to your parents.. However, you may eventually sell it and since you have been basically buying it on an installment plan, I would consider your basis to be 200k.

I agree that they don't have to file a gift tax return. They are not giving it to you they are selling it to you.

Mortgage interest is no longer deductible. Nor are taxes. Per anyone that has done their taxes. Are you sure you are a tax professional?

 

[Taxing Matters]

Mortgage interest is no longer deductible. Nor are taxes. Per anyone that has done their taxes. Are you sure you are a tax professional?

Actually, while a lot of itemized deductions are gone, mortgage interest and state and local taxes still remain. However, they are more limited than in the past.

The mortgage interest deduction is now only allowed for mortgage loans taken out to buy, build or substantially improve the taxpayer’s home that secures the loan. This means that interest on home equity loans taken out for other purposes, like a vacation, buying personal goods, or whatever, is not deductible under the home mortgage interest deduction like it would have been before. Interest on some home mortgages still might be deductible under some other provision. For example, interest on a mortgage loan taken to fund the taxpayer's business would still be deductible as a business expense.

As for the state and local tax deduction, at one time the proposal was to kill it entirely, but the lobbying from states with high taxes got Congress to back off that idea. But now the deduction is limited to $10,000 for single and married filing joint filers, and $5,000 for married filing separately.

 

[Ohiogal]

Actually, while a lot of itemized deductions are gone, mortgage interest and state and local taxes still remain. However, they are more limited than in the past.

The mortgage interest deduction is now only allowed for mortgage loans taken out to buy, build or substantially improve the taxpayer’s home that secures the loan. This means that interest on home equity loans taken out for other purposes, like a vacation, buying personal goods, or whatever, is not deductible under the home mortgage interest deduction like it would have been before. Interest on some home mortgages still might be deductible under some other provision. For example, interest on a mortgage loan taken to fund the taxpayer's business would still be deductible as a business expense.

As for the state and local tax deduction, at one time the proposal was to kill it entirely, but the lobbying from states with high taxes got Congress to back off that idea. But now the deduction is limited to $10,000 for single and married filing joint filers, and $5,000 for married filing separately.

I still disagree with her being a tax professional as she has given no idea when she argues with you or others that are actual tax knowledgable. It could just be my illness making me say this.
(GET A FLU SHOT!)

 

[Taxing Matters]

(GET A FLU SHOT!)

I got one back in December. Didn't stop me from getting some weird virus last month that sent me to the ER in extreme pain. It was awful, but there wasn't much the ER could do since with most viruses all you can do is wait it out.