Gift money for family or buy a rental for family?

Question

Complicated post and I realize this might be more geared to a CPA, but figured I would try here and see if anyone else has come across a similar situation. Will itemize for brevity purposes:

- Mother wants to move to Saint George, Utah and get a home in a 55+ community

- Me (son) has cash and wants to buy the home for her. Budget is roughly 400k - 500k.

- I am a high income earner who lives in TX and we have no state income tax. I have no other passive income.

- From a tax perspective, do I gift her the cash and she goes about it her own with the deed her in name? Do I pay for it and put both of us on the deed? Do I buy it and treat it as a rental property. The catch is she is retired and won't have income except SS, thus I would be paying for everything...the HOA, repairs, utilities, insurance, etc. Or should I have her pay me under market rent and then if she ever needs money for whatever I can just send her $500 on Venmo here and there. Looking for any ideas on how to best approach this. I have not spoken to a CPA yet and am just scratching the surface on this topic. I tried to some AI searches, but they were mostly inconclusive.

- Mom is 73. Who knows how long she has left, but long term I would expect to keep this in my portfolio as a rental property.

Henry Clark · Answer

OP.

1.  Biggest issue. Will she go into a retirement home at some point.  Let's say $10,000 per month.  The government will require all of her assets to be used up, except for $2,000 cash.  Even if she was to sale or gift the house before she went into the home.  They will go back at least 5 years and take back any assets that she let go.  Would keep the house in your name.

2.  Buy the house and loan her the money.  Whatever is closest to "Legal".  Have her give the smallest downpayment.  An interest rate that works for her.  Place a lien against the house in your name.  Have her do both a will and an irrevocable trust, with you getting the house.  The government still might get the Equity buildup, thus you want the payment to not accumulate to much equity.  But that is better than the full amount.  You get the property back at a stepped-up basis.

3.  Keep the house in your name and charge her rent.  You pay for all taxes/insurance/maintenance.

Ashish Acharya · Answer

@Jason Burkart To maximize tax benefits, consider buying the property as a rental and leasing it to your mother at fair market value (FMV). Renting at FMV allows you to deduct mortgage interest, property taxes, repairs, HOA fees, and depreciation against your W-2 income, potentially reducing your overall tax liability. Gifting her cash simplifies ownership but forfeits these tax advantages and requires filing a gift tax return for amounts over $19,000 (2025 annual gift exclusion). If she lives rent-free, you retain control of the property but lose the ability to claim rental-related deductions.

For long-term planning, consult a CPA and attorney to ensure compliance with tax rules and align ownership structure with your goals, including potential conversion to a rental or estate planning considerations. Renting at FMV ensures the property qualifies as an investment while preserving its long-term utility for your portfolio.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Theresa Harris · Answer

Sorry, what I meant is if she lives in the house for 10-20 years with you paying for everything, you are paying for her housing for that period of time.  It sounds like she's been renting, so there is no equity in her home.  Good for you helping her out.

Jason Burkart · Answer

Sorry, not sure what you mean by pay for her home for 10-20 years? If I bought a 55+ house for her now I would most likely pay cash for it. Her income now is SS of around $2400 and a basic 40hr office job that pays all of $17/hr, but she is retiring with this move. She has some stock (maybe 50k), some retirement IRA of around 100k which I believe she has started to take and then maybe 20k in her savings account. No other assets.

I'm not rich, but I make a very healthy living and I'm around a 7 figure income. So most likely I will pay cash or close to it for her new 55+ community home and our budget is 450k max. If I paid cash for this property, the HOA + Insurance + taxes is around $500 / month.

Jason Burkart · Answer

I completely understand that concern and glad you both raised that point about a nursing home, however, I do have a big house and we have casually talked about moving her in with me when that time comes. Who knows, but should prepare either way.

Theresa Harris · Answer

Whatever you do, I'd keep it in your name if you are the one paying for it, in part for some of the reasons others mentioned (if at some point she goes into a retirement home and needs to use her assets to pay for care).

Are you able to pay for her home for 10-20 years?  What is she doing now in terms of paying for housing?  Can she pay you that same amount to cover some of the costs?  A $400-500K mortgage is not a trivial payment plus property taxes on top of running your own house.  There will also likely be condo fees.

Linda Weygant · Answer

Not really.  It takes 2 off the table.  And never say never with regard to a lifetime gift limit.  That limit has bounced all over the place for the last 50 years and is subject to congress' whims.  Just because that number seems unachievable now, that does not mean it is.  It's also possible that inheritance tax will be more aggressive or more lenient in the future.  You have no way of knowing.

Henry brings up an excellent point about going into a nursing home where she'll be paying some/all of those fees with Medicare.  They do require that person to have no assets, so a house in her name could be problematic.

Jason Burkart · Answer

I am the only child. Does this change your opinion?

Also, I just read that the the 2024 lifetime gift limit is $13.61 million and I will NEVER approach that amount. I gave her 30k in 2024 and that was to buy a new car to replace her 15 year old Accord (which just keeps on running).

Linda Weygant · Answer

A few issues come into play on this.

1.  If you're looking to treat this as a regular rental, then charging undermarket rent throws a monkey wrench in that.  When you charge under market rent, the IRS deems that you do not have a profit motive and, therefore, disallows all rental expenses.  You still claim the income as miscellaneous income and deduct property taxes and mortgage interest (subject to SALT and other high mortgage limitations) on your Schedule A, but that's it.

2.  If you put the house in her name and you have siblings or other folks who would have a claim as a direct heir on her estate, you run the risk of losing the property to another heir.  You can make sure her will states you would inherit it, but it's risky because wills can be changed at any time.

3.  If you do place the property in her name, you've got a Gift Tax (Form 709) to complete.  Unlikely to be any tax due if this is your first gift, but it will count against your lifetime exclusion down the road.  This may come into play as you near the end of life and need to think about estate planning.

4.  If you do place the property in her name, then inherit it later, it does allow for you to receive a step up in basis at that point, allowing you to sell the house shortly after her death without paying capital gains tax.

5.  If you keep the property in your name, but allow her to live in the property, I wouldn't charge her any rent.  That way, her limited funds can go toward her own living expenses.  Since you won't be able to recognize it as a valid rental if you're charging under market rent and you also expect to be covering any house expenses that are outside of her budget, this seems the best choice.  It also makes things cleaner with other potential heirs.

Gift money for family or buy a rental for family?

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