All Forum Posts by: Lawrence Kaplan

@Stephen Valder,

Your  solution makes a lot of sense, but in the case you mentioned, you likely had to declare gift tax, as the amount gifted looks more than the annual exclusion allowance.  Did you split the gift over 2 calendar years to avoid this ?  I believe that lenders are very specific about rules regarding gifts as down payments, requiring special letters and documents.  Was this your experience ?

Larry

@Michael Plaks,

The family dynamics would take a while to explain and I am pretty sure it would bore you and everyone else.

The simple answer is: it (our loss) is a gift to her.  To allow her to qualify for a mortgage, to afford to pay, and to achieve relative independence.

This purchase has always been about helping her.

Larry

Thanks Carl.  

One other thing not in my original post, it is understood that an evenutal consequence is that our daughter's basis, when she buys the property, is the low sale amount, which could affect her in the future if/when she sells.

It would be better, of course, to die first, and have her inherit the property with a "step-up" basis.  But I hope to live another 15 or 20 years, so dying is a lousy strategy for me... :-)

Larry

I am somewhat new to real estate rentals, but am pretty knowledgeable about taxes. Here is my situation, and I wonder if my overall strategy is sound.

I have 2 goals in posting this - first to inquire if I am missing anything or otherwise being unwise or risky in my strategy, and secondly, to document a situation, not all that uncommon, which may help others in similar situations.

1.) My wife and I bought a condo a few years ago for our daughter to live in. The condo is titled to our family trust, and there is no mortgage, We have been renting it to her for an attractive rent - clearly below market value.

2.) We have been declaring the rent as income on our taxes, and taking a deduction for the real estate taxes on Schedule A. No other expenses or deductions are taken, because we are renting below market.

3.) Due to the new tax laws, and our personal situation, we will no longer be able to deduct real estate taxes if things remain status quo.

4.) In October, our daughter's partner is moving in with her, and we are raising the rent to market value. We will convert the condo to rental property at the time for tax purposes and begin to take all advantages offered to us - depreciation, expense deductions, etc.

5.) In the future, in perhaps 3-4 years, our goal is to sell the condo to her at (well) below market value.

6.) We will at that time claim gift taxes for the difference between market and the actual sale values, minus the annual gift tax exclusion. We will take the available credit against the unified federal gift and estate tax exclusion, and expect to pay no actual tax. (Yes, our estate tax exclusion in the future will be reduced by this amount.)

7.) Our sale is expected to be a loss, and we expect no capital gain or tax due to depreciation recapture. I understand that the capital loss cannot be claimed.

The entire intent to to practice parental largess without being subjected to additional taxes other than what is noted.

Any comments or advice is much appreciated,

Lawrence Kaplan

Marlborough, MA

As a curious aside, I wonder how the IRS will hereafter (subsequent to the new tax laws) treat "not for profit" situations.  Given that the miscellaneous itemized deductions on Schedule A are no longer available, it would seem that expenses (other than real estate taxes and mortgage interest) can no longer be deducted to offset income.  It will be interesting to see how the IRS rewrites this section for the 2018 version of pub 527.

Many thanks Michael.  I am impressed and admittedly amazed at how responsive experts on on this message board.

I am going to post more about my situation in a separate thread,

Thanks again to all,

Larry Kaplan

Marlborough, MA

Thanks all.

Michael, I was quoting from IRS pub 527 page 16 chapter 4 "not rented for profit". The rules are quite draconian if you don't pass the 3 out of 5 year test...

Larry

Thanks Arlan.  That makes sense, although I wish the IRS said that somewhere.  If there is an IRS reference, a pointer would be much appreciated.

In any case, thanks again.

Larry

Is depreciation part of the calculation to determine whenther a property is rented for profit or not ?  The IRS says a profit exists if "your rental income is more than your rental expenses" -- but is depreciation considered a rental expense ?

Depreciation can be very high which makes the profit test difficult to achieve.

Many kind thanks for an answer

Lawrence Kaplan

Marlborough, MA, USA

Many kind thanks Nicholas.

My deed says:

"The unit is conveyed together with an undivided  .01111 percentage interest pertaining to said Unit in the common areas and facilities of the condominium..."

This seems to suggest I own 1/90th of the land, doesn't it ?

Your advice is very much appreciated !

Larry

Hi Nicholas,

I am converting a condo from personal use to rental income property.

The town assesses the land valuation at zero - they do not valuate land for condos, and they also told me no one has ever asked them before.

So, I am at a loss how to calculate the depreciation basis, which the IRS requires that the land value be excluded.  I own one unit out of 90 total units in our complex.

Do I need to hire a professional appraiser to do this ?  Of course I would like to avoid that.

Thanks,

Larry K.