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  • Renting to parents

    Hello,

    I was hoping for some general advice. I’m not sure where to start on this topic so I’d appreciate it if you pointed me in the right direction. My wife and I are closing on a property in the next several months. There is a separate guest house that my in laws are willing to move in to. We have a good relationship with my in laws. Both are still working and plan to continue to do so. They will contribute to the mortgage payments for the property.

    The guest house does need some updating. My questions are is there some way of structuring the upgrades or help with mortgage payments so that they can be written off as business expenses? Should I set up an llc or something and charge my in laws rent through through it or am I just creating more taxable income?

    Thank you in advance.

  • #2
    Originally posted by shibbymd View Post
    Hello,

    I was hoping for some general advice. I’m not sure where to start on this topic so I’d appreciate it if you pointed me in the right direction. My wife and I are closing on a property in the next several months. There is a separate guest house that my in laws are willing to move in to. We have a good relationship with my in laws. Both are still working and plan to continue to do so. They will contribute to the mortgage payments for the property.

    The guest house does need some updating. My questions are is there some way of structuring the upgrades or help with mortgage payments so that they can be written off as business expenses? Should I set up an llc or something and charge my in laws rent through through it or am I just creating more taxable income?

    Thank you in advance.
    Seems better off if they just pay you directly for mortgage cost, <15k per person per year so you to 60k per year should more than cover it.

    But personally, I wouldn’t be charging my in laws rent though even if they offered or insisted on it.

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    • #3
      GastroMastro Agree. Even if I worked at fast food for my full time job, I wouldn’t charge my parents and in-laws anything.
      dont open a llc. Keep it simple.

      Comment


      • #4
        not an expert on this but i'm guessing the fact that this is a guest house rather than a detached property would significantly complicate an attempt to treat it like a rental property?

        agree with others who would caution you about such a long term entanglement with in laws, even if you have a good relatioship.

        Comment


        • #5
          Easy enough to designate the mortgage payments as rent. Put a contract in place, make sure it is reasonable. As rent, you get to write off expenses on the property, almost certainly owe no taxes and have a loss c/o. Money is fungible - if they are contributing to the mortgage, what difference does the terminology make?

          Otherwise, if they are reimbursing you for the mortgage pmt, you will either need to reduce your mortgage int deduction or treat it as a gift (with appropriate paperwork) and they will possibly need to file a gift tax return. Talk to your CPA, prepare a projection under both scenarios, and make a decision.

          I have found that, with family, keeping arrangements involving money as arms-length as possible usually is the prudent route.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Just curious , how you would do this as far as taxes, would this be on a Schedule C or would you be better off with a separate business. I personally have a RE business that my practice rents to my medical practice.

            If it is the same for a personal property it might get tricky with township and zoning having a business owning part of the real estate.

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            • #7
              Originally posted by WorkforFIRE View Post
              GastroMastro Agree. Even if I worked at fast food for my full time job, I wouldn’t charge my parents and in-laws anything.
              dont open a llc. Keep it simple.
              The thought of even charging parents or in-laws to stay with us will not even cross our minds and in our culture would be considered a dishonor to even think about such a thing.

              But in this case why not keep it simple.. You own the property and do the repairs and upkeep. Let them pay whatever they can afford as gifts to you.. Each parent 15K to you and 15K to your spouse and same for other parent. I think the rent should be well under 60K. No need for extra tax work.

              Comment


              • #8
                Originally posted by Random1 View Post
                Just curious , how you would do this as far as taxes, would this be on a Schedule C or would you be better off with a separate business. I personally have a RE business that my practice rents to my medical practice.

                If it is the same for a personal property it might get tricky with township and zoning having a business owning part of the real estate.
                No, it would be on a sch E. I understand this is not acceptable in some cultures (we have many Asian heritage clients and some African) and would not encourage a client to be dishonorable. In other cultures and families, this is perfectly normal. So this is a highly personal decision and there are reasons for each family will make the decision that is appropriate for them. It’s not always about the money.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  Originally posted by shibbymd View Post
                  Hello,

                  I was hoping for some general advice. I’m not sure where to start on this topic so I’d appreciate it if you pointed me in the right direction. My wife and I are closing on a property in the next several months. There is a separate guest house that my in laws are willing to move in to. We have a good relationship with my in laws. Both are still working and plan to continue to do so. They will contribute to the mortgage payments for the property.

                  The guest house does need some updating. My questions are is there some way of structuring the upgrades or help with mortgage payments so that they can be written off as business expenses? Should I set up an llc or something and charge my in laws rent through through it or am I just creating more taxable income?

                  Thank you in advance.
                  Welcome to posting and hope you stay and respond! Really depends on your financial relationship with your in-laws --- ie. are they open and willing 'make the dollar stretch' type vs 'don't bother me with finances, just tell me the $' type. If the former, you can get creative and involve them in financial schemes to optimize. If the latter -- tell them to just help out xx on mortgage and yy on upgrades -- or just plain let them live there. Not worth the family headache.

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