Rental Property Investor · Sonoma County · Member since 2019 · 5 posts · 1 vote
Hello Everyone,
My sister and I recently inherited a paid off rental property that nets around 20k a year. This house is held within a living trust that my parents set up. All assets within the trust are supposed to be divided 50/50 between my sister and I.
Is there any way one of us can report 100% of the income the property generates (while maintaining that 50/50 ownership)? Maybe there are some creative tax strategies or the creation of an LLC that would allow this...
However, if there is no creative tax strategy that allows this what would be the easiest/lowest tax way for one of us to give “sell” their partial ownership in the property each other?
There are many reasons we would like to do this but the main reason is it would allow one of us to report a higher income and improve our debt to income ratio.
It seems that you want to change the optics of this joint ownership without actually changing said ownership. In other words, you both will continue to share the economic benefits of your inheritance, as in splitting the $20k income, while telling the government and the lenders that it is not the case. I believe you understand why this is not an idea that professionals can endorse.
If you're planning to actually alter the ownership, all for DTI purposes, then it may not be worth the benefit. You mentioned that you had multiple other reasons. Maybe they warrant a change of ownership, but I doubt that DTI alone does.
Rental Property Investor · Sonoma County · Member since 2019 · 5 posts · 1 vote
6y
Sorry for the lat reply, gentlemen. I hope you're both healthy during this crazy time. Eamonn, doing a cash out refi and buying more income producing rental properties is what I've decided to do. I agree that the juice isn't worth the squeeze. I'm working on finding other less expensive markets with good price to rent ratios, low vacancy rates, overall population growth, etc. since my market is way too expensive (Northern California) to easily find cash flowing rentals.
Michael, I would never intentionally break the law and/or mislead lenders with how i report my income. That's why I was asking if there happened to be any legal ways for my to receive and report the income the property generates without my sister and I changing the way in which we own the property. Thank you for your insight! Also, what martial art do you train!? I cant help but notice the black belt. I used to train Brazilian Jiu-Jitsu myself and would love to get back on the mats some day. Cheers.
Good luck with your plan, although the timing is bad. Hard to refi anything today. Also hard to collect rent.
As to my belt, although a real one in one of the composite Korean styles, Kuk Sool, it is simply part of my "Black Belt in Real Estate Taxation" branding.
Rental Property Investor · Sonoma County · Member since 2019 · 5 posts · 1 vote
6y
Yes, the timing isn't great to say the least. I'm not going to jump in the deep end just yet. I'm going to wait a few months to see where the economy is at as whole. The property we own in Chico is paid off and the income it produces would more than offset the new loan if we did a cash out refi at 75% LTV. Hopefully, that fact combined with our low DTI ratios and high credit scores will allow us to perform a refi in this difficult time.
Fortunately, we haven't had any issues collecting rent. We screened both of our tenants very thoroughly and neither have become unemployed/under employed. One is a professor at a small local college so his income is very stable and the other still has his job + we have a cosigner on his lease. Awesome, love the branding.