Tax Q's About a Co-signed Primary Residence

[Leslie Beia]

Hi! I've talked to 2 CPA's and have received completely different information, so I'm hoping someone here can clarify!

I have purchase a SFH (with hard money) that I intend to live in and share with renters (house hack), then sell in several years to avoid capital gains. However, I cannot qualify for a conventional mortgage on such a big house (the catch 22 of this strategy!) when I refi, so I am going to ask my sister if she'd be willing to co-sign the loan. She has a high-paying W2 and owns her house free and clear, so she's well positioned to do this, but there is a primary concern I know she will have that I want to get clarity on before I approach her: how it will affect her DTI (she is thinking of buying another home down the road)? In additional to offering her a nice payoff for the service when I sell, I am hoping she might see some tax benefit as well since she currently doesn't have any tax write offs.

So, trying to figure out if the situation would be if I am the owner/occupant of a primary residence taking a homestead deduction for said residence and otherwise not seeing any benefit from an investment standpoint in tax write-offs. And she, as a non-owner-occupant co-signer on the loan could 1) claim 75% of the rent as income to help offset the increase to her DTI and 2) see any tax benefit being able to write off interest, repairs, etc.

One CPA said that yes, as long as everything is above-board with the IRS, this is all ok, and another one said no, she cannot act as a landlord in this situation and see any tax benefit or improvement of DTI. Also have spoken to several lenders who have not been totally clear how this would pan out. If anyone has experience with this situation, I'd love some clarity!