***We don't want to be home owners anymore ***

[Walter Duffy]

Hello everyone. I wanted to lean on some of you that have experience. My in laws live in Greenwood SC said they do not want to own any more the would rather rent from us so we can benefit from the tax advantages. They are leaving their home with potentially 50k in equity to my family and I. Because they do not own the home out right they cannot gift it to me. I have come up with 3 options:

1- buy the property and have the negative cash flow of $100-200 per month then wait until the in-laws move out so we can almost double our rent and have a positive cash flow of $90+ every month?

2- get the mortgage statement sent to my primary home and pay it. Then collect rent from in laws?

Or

3. Or don't buy?

Thank you for your time and advice.

3.

[Joe Splitrock]

@Walter Duffy unfortunately the IRS has very specific rules about renting to relatives at fair market value. You can't charge them half of market value to manufacture a tax loss, because that is considered tax fraud. You need to charge them fair market, which is the going market rate for similar properties or the same price you would charge someone you are not related to.

As far as the mortgage, you can just start making payments on it. Write up a contract and have them transfer deed to you. Under the agreement, you pay them a lump sum and take over their loan. It stays in their name, but you pay the loan and you get the interest statements sent to you. As long as you take title of the property and have proof you are paying the mortgage, you can legitimately claim the expense. Make sure you pay them something for the property, so the sale involves transfer of funds, which helps to legitimize the transaction.

Just be very careful here, because charging under market rent and buying the property for under market value will appear as tax fraud during an audit. Google renting to relatives under fair market rent IRS and read up on it.