Is this taxable?

[nync]

What is the name of your state? Tennessee
If someone gave others over $150,000 dollars that they used to renovate their existing home so that the donor could live there, is the money reportable as income for the ones who received and used it? It was not a loan and the donor's name is NOT on the title to the house.
Thank you!

 

[abezon]

If the money was payment for living there, it's rental income. If it was a gift, the donor needs to file a gift tax return, but won't pay any taxes, probably.

 

[dallas702]

But, if he paid for their services to renovate the home he has gotten value in exchange for his money. The IRS will not see this as a donation of "free" money for "free" labor. Those types of trade-offs were disallowed decades ago.

If the donor is not the owner of the house he can't write off the expenses of the renovations, but whoever did the work must claim the money received as income...because it is.

Now, if this was all done with cash, and no one is yearning to run to the IRS, why would anyone reveal the whole situation? The danger might come if the people doing the renovation are also operating as a business and they are audited. It would be easy to figure out from materials purchases how much work was done and then that could be imputed to estimated income for tax purposes. But, that's a lot of "ifs".

 

[Snipes5]

The way the original post reads, it appears that the money was gifted to some people who used it to pay for renovations, not who were paid to actually do the renovations themselves.

Snipes

 

[dallas702]

Yes, that needs to be clarified. That, and the method of payment. $150K is a lot of dough to be handed over in cash, even over time. I'm just thinking that if the IRS were made aware of this arrangement they would see it as an exchange of consideration (because both parties got loads of value), and would want their piece of the action. We've seen the attempts to make ownership of a home taxable as income as though it would have been rent paid, so nothing would surprise me when it comes to creating "income" for tax purposes.

Just pondering this further. If the donor gave the homeowner(s) money to renovate the home to accomodate his needs to live there (ie. handicap friendly), I can't see where this would be considered income. However, if the value of the home is raised considerably, then sold after the donor passes or moves, it may be part of a capital gain (?).

 

[abezon]

If the money was to make the home handicap accessible, the money spent is a medical expense for the donor. The increase in value of the home would be income to the owner. However, this sounds like it may be a parent paying for renovations & moving in with a child, which is more of a gift arrangement. If the home owners didn't have a written obligation to renovate the home or let the donor live there, it was a gift.

 

[nync]

Clarification

I need to know the answer to this because I am going to report them to the IRS if they should list this as income. The ones who received the money are my sister-in-law and her husband. My mother-in-law has been brainwashed by them and as soon as my beloved father-in-law died in July, she forced her to make a new will and disinherit all the other children, except for her. My mother-in-law has given this money to them by checks so there is a record.
She has also made them her new POAS when my father-in-law died. It's very complicated and we have done no wrong. My sister-in-law is a drug addict and things got out of hand before we knew it. Since my children have had their inheritance ripped from them, I plan on doing what I can to make them sorry for what they did and I will turn them in to the IRS. I just need to know for sure if they should report this as income. I also believe they charged my in-laws rent when they lived with them last year and I know everything was done by check. Please advise. Thank you!

 

[Snipes5]

My advice is to hire an attorney. End of story.

Snipes

 

[dallas702]

Ok, this is messy. You should talk to either an Enrolled Agent (check a local CPA, tax preparer, or financial planner's ofice), or to an IRS customer service agent. Just keep in mind that if you are able to wrestle the estate back out of the hands of your sister-in-law you may need to sue them to recover any of the money they might have swindled out of your mother-in-law. If the IRS steps in and throws liens against them you will be lucky to get anything that's left over. And, you absolutely do need a good lawyer to look at the situation with your mother-in-law. I'm sure you'll be told up front though, that if your mother-in-law is legally competent she can do whatever she wants with her estate/assets. Your local DA's office can tell you if they have broken any laws.