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tax benefits of grandparent's condo?

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  • tax benefits of grandparent's condo?

    Are there any tax benefits for owning a condo that grandparent's live in? Such as capturing depreciation?

    My parents recently moved to be closer to our family and help out with the grandkids. We bought them a condo to live in nearby our home.

    We did not intend to purchase the property as an investment, per se, but mostly as housing for them. They are not in the most stable position financially, and we thought that it would be best/easiest to cover this one concrete expense for them (ie. housing), and they can live off of their Social Security and a little part-time work income for their own food/entertainment/travel/etc.

    The condo was paid for in cash, so our only monthly expenses are the association fee and insurance/taxes yearly. We obviously don't charge them rent, so we don't have any income from the property.

    Is there any way to use this property in a tax beneficial way for my wife and I?

    We own our home, and the mortgage will be paid off in a few years. We already exceed the $10k SALT deduction on our personal income taxes. I do not quality for Real Estate Professional Status. We don't own any other real estate besides our primary home and this condo.
    Other investments are exclusively in the market - stocks, bonds, REITs, etc.
    Our overall financial situation is pretty stable, and we are in a good trajectory for retirement savings.

    We purchased the condo as a gesture of love and care for our parents, not necessarily as an investment in any way. Just wondering if there might possibly be some ancillary tax benefits with ownership there that I am missing.

    Thanks!








  • #2
    It’s been a while since I looked at the rules on turning a property into a rental business and intent to make profit/charge market rent. That would be the thing to look at here. Provided you are even allowed to charge $0 rent you’d at least be able to deduct all expenses, including real estate taxes, depreciation, utilities, etc. But pretty sure that would require a signed lease acknowledging owner pays utilities, cost of rent, etc. You’d essentially be racking up a large negative loss carry forward and at time of sale. You’d still owe tax on all depreciation but then you’d have losses that you’d be able to realize and that carry over to the 1040. Those losses would probably offset the depreciation add back but it all gets reconciled on the Schedule D tax worksheet at different rates. Anyhow, the key thing is the signed lease and the legitimacy of $0 rent, which is not likely allowed.

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    • #3
      With relatives I think you have to charge FMV rent in order to get any investment property deduction. Passive income at that. Second residence, property taxes and zero interest!
      The government tax policies are not favorable for assisting parents.
      By the way, your parents did a good job in raising you. Wonderful gesture. I am sure they appreciate it.

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      • #4
        Short answer. Nope.

        If you had a mortgage, could claim second home in round about ways.

        As an investment property. Need to charge rent. Then trouble of recapture depreciation without real estate status. No real benefit there.

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        • #5
          Got it, thanks for the replies.

          I kind of figured as much, but thought I would throw it out there to see if someone knew something that I didn't consider.

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          • #6
            Originally posted by dfung226 View Post
            Got it, thanks for the replies.

            I kind of figured as much, but thought I would throw it out there to see if someone knew something that I didn't consider.
            Just a note. This is just the first step. You mentioned “one concrete step”. Down the road, not paying rent will disqualify them from many other benefits. That’s just the way “need” is measured by the government. There is a 5 year look back. A whole different topic. Don’t intend to hijack the thread.

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            • #7
              Just an fyi, one more expense you’re not considering: the opportunity cost for the money. This is not an arms’-length transaction, no way can you deduct anything given you paid cash and you’re prob already maxed out on SALT. But it’s a fair question and I get similar a lot, so don’t feel bad for wanting to know that you’re not missing any hidden benefits.

              You don’t get a tax deduction for being kind and setting a wonderful example for your children (I would be sure to explain why you are doing this as a family), but you get a lot more in return than money could ever buy.

              Welcome to the forum!
              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                it sounds like asked and answered but a general rule of thumb i've found that usually helps me think through tax questions is "does this sound a little too good to be true?"

                if the answer is yes, it's not allowed.

                examples of things that sound to good to be true:
                -K1 doc buys luxury car, deducts as biz expense
                -home office most of the time

                only exception i know of is backdoor Roth.

                think about the implications if this were true, you'd be incentivized to buy a lake house, say your kids live there and pay zero rent, and treat all of the expenses as biz expenses etc.

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                • #9
                  Originally posted by MPMD View Post
                  it sounds like asked and answered but a general rule of thumb i've found that usually helps me think through tax questions is "does this sound a little too good to be true?"

                  if the answer is yes, it's not allowed.

                  examples of things that sound to good to be true:
                  -K1 doc buys luxury car, deducts as biz expense
                  -home office most of the time

                  only exception i know of is backdoor Roth.

                  think about the implications if this were true, you'd be incentivized to buy a lake house, say your kids live there and pay zero rent, and treat all of the expenses as biz expenses etc.
                  Yes, it’s called a related party transaction. I would add to your list HSA (probably before BD Roth, since HSAs are deductible + non-taxable) and $500k gain on sale of primary residence when the circumstances fit.
                  Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Originally posted by jfoxcpacfp View Post

                    Yes, it’s called a related party transaction. I would add to your list HSA (probably before BD Roth, since HSAs are deductible + non-taxable) and $500k gain on sale of primary residence when the circumstances fit.
                    Well, given the perpetual opposite of too good to be true wealth tax on the home combined with inflation I’d say the $500k cap gains exemption falls lower on the list.

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