Roommate Rent -how to claim that income?

Question

I have posted about this issue before and got some assistance on the matter but ran into another snag. A brief synopsis

Parents and I purchased a house together in 2011 and put into an LLC which we were supposed to be equal parters, while leaving the mortgage solely in my name. I was 24  and was taken advantage of - not the smartest decision on my part.  I found out two years ago they left me off the LLC and I never owned the title to the house house.  I do not own a house I am financially responsible for. Not asking for advice there - just wanted to give a brief backstory to preface my next question.

I paid the mortgage, repairs, upkeep, etc out of my personal bank account for 6 years. I did have roommates for part of that time that I chose to get to live with in order to help pay for repairs/pay the mortgage down. Also paid extra towards the mortgage principle. I am trying to calculate my expenses I have put into the house during this time for the mortgage and upkeep, but things get muddy because I chose to have roommates. The question is: how is the money that was paid by them  factor in? Do I just take the mortgage I paid and subtract any roommate payments I got? I got these roommates thinking I could pay the mortgage down quick and be mortgage free in 15 years but that was definitely not the case. Legally speaking, can I include their rent money towards the total of out of pocket expenses i've had for the house?  For example if the mortgage was $1500/month and I paid $1000 and a roommate paid $500, how would I report that month's expenses? There has got to be some value in the inconvenience of having a roommate in this particular situation especially since I got one trying to pay down a mortgage for a house I thought I owned.

Danielle Scott · Answer

@Ashish Acharya PM'd

Danielle Scott · Answer

@Mike H.

Going to talk to an accountant friend later today. Any specific questions to ask to get clarification on this?

Danielle Scott · Answer

@Mike H.

" Unless your parents were managing the property and finding those roommates, your monetary contribution was the full amount you paid. Mortgage, taxes, insurance, repairs."

This is also what I thought. Just wanting to get out of this situation whether they refinance it in their names or sell it. I'm trying to get out of it what I put in, hence the reason for trying to come up with my total amount invested. They're saying the money from the roommates I had (and managed and had to deal with) doesn't count towards the grand scheme of what I put into it. I disagree for the reasons above.

Will look into the cash for keys option if the CPA/lawyer route doesn't work out. Thank you for the suggestion.

Mike H. · Answer

Couple of things. They can do cash for keys without a foreclosure. They may not want to do that and may not offer that to you now. But you can push some buttons and most banks would gladly do that over a long drawn out foreclosure. It might mean some missed payments first and that would affect your credit but better that than being stuck with this.

That being said, if you can get out of it some other way, I would try that first. It wouldn't surprise me if a judge were to force them to put you on the llc as a 50/50 partner as previously agreed.  Thats the easy fix.

In terms of money into the property. I wouldn't count roommates rent separately. Ultimately, all that should matter in terms of what you have paid is what you have paid. Whether you got some of that money from a roommate is irrelevant.

Unless your parents were managing the property and finding those roommates, your monetary contribution was the full amount you paid. Mortgage, taxes, insurance, repairs.

From a legal standpoint, however, I wouldnt be surprised if your parents' attorney were then able to claim that you lived at the house and should therefore have to accrue a certain amount of money that would have been collected had the house been rented. And it may just be that your payments are less than what it would it would have been had they been able to rent the house out.  So you may end up owing them money.

i.e. Lets say your mortgage payment with taxes and insurance are 1200/mo. But the house would rent for 1400/mo. Your parents' attorney could easily suggest that they were giving you 200/mo in value by letting you live there.

Regardless, the ownership thing is clearly not what was intended there. No judge would look at that and think that it would be reasonable that you be stuck with the mortgage on a home where you had no ownership interest.

Ashish Acharya · Answer

@Danielle Scott, see above.

Ashish Acharya · Answer

Danielle,

You need to allocate your expenses based on the rented portion of the house. You also need to depreciate the rented portion of the house.

I have a resource that will help you do that. See below. Pm me.

Danielle Scott · Answer

@Mike H.

I've also worked very dilligently to get my credit into the 800's. Not willing to let a foreclosure ruin my financial life for the indefinite future. Have already called the bank and there is no option besides stopping payment and letting them foreclose. I will hire a lawyer before ever considering this route.

Danielle Scott · Answer

@Mike H. It is, isn't it? Thanks for your response. I quitclaim deeded the house over to the LLC after the loan closed. At time of closing it was in my name alone. I didn't know what I was signing and at 24 and just after my parents helped me buy this amazing house I didn't think they were trying to screw me. You live and you learn. I have made them aware this wont continue to go on the way things have been going and they will be getting the mortgage out of my name and reimbursing me for the money I have put into it by the end of the year or I will hire a lawyer.

I have consulted with several lawyers and they have all said to gather my bank records and determine what I put in it. Therefore, the roommate question. They paid a significant portion in rent and I'm trying to determine if I can use the money they paid to factor into my contributions since they were roommates and not tenants.

Mike H. · Answer

I gotta tell you, thats the craziest thing I've ever heard.  How in the world did the lender allow you to close on the loan if the title was being placed under an LLC that you did not solely own? I'm assuming that you deeded it over to the llc some time after the loan closed?

I would strongly suggest you get an attorney to fix the ownership issue.  Your argument is clear. You had agreed with your parents that youd' be part of the llc and that was the only reason you agreed to be responsible for the loan. And then they refused to put you on the llc.

What is also a bit odd is that you have owned this property for six years and are only now trying to find out how to report the income and expenses on your tax returns.

I'm just curious - how have you been doing the reporting? Again, this is the craziest thing I've seen yet. :-)

Ultimately, you are not the owner of the house. The fact the mortgage is in your name may or may not give you the ability to write anything off.  You may in fact be considered nothing more than a renter here. So your payments towards the mortgage and repairs may be considered as nothing more than a rental agreement with the parents.

It literally is that strange a situation that anything is possible.

The only advice in terms of taxes and deductions I think anybody could give is that you absolutely have to contact a cpa. And do it fast.  This is not going to be an easy one for them. Be sure to explain the lack of ownership so they can take that into account.

I'm guessing that your parents were the one that put up the money to buy and possibly fix up the house and thats why they going to partners with you on the llc to begin with?

If it were me, and I was getting stuck like this. I'd first take my shot at having an attorney sue to get me on the llc as was previously agreed. And if, for some reason, that wasn't possible, I'd default on the loan and give the keys to the lender.

After 6 years and given the market increase over that time, I'm guessing there's enough equity in the house that the bank would do a cash for keys and call the loan even.  Then at least you wouldn't have to go on paying for something that you have no equity interest. And you could stick it to your parents for pulling a fast one.

But you definitely need to pay for a cpa right away to get your reporting legal. I would bet, based on your questions above, that you are either under reporting or over reporting your income. But I would doubt your taxes are being done correct today.

Steven Hamilton II · Answer

First, you need to consult them or an attorney on the ownership situation. You can do a quick search on "house Hacking" and they will show you exactly how to account for everything.