All Forum Posts by: Account Closed

Hello, I wanted to get an idea of what the end-of-year taxes are like for LLCs that own properties. Specifically for this scenario...

We expect to pay off my parents' home by early 2017. My plan is to establish an LLC that I would own and transfer the house to the LLC. My parents and I are aware of the tax implications with the transfer. We do not plan on renting out house to anyone. My parents would live in the home after the transfer but would mainly be traveling. They do plan on paying rent to the LLC but way below the market rental value - just enough to cover annual taxes and utilities. LLC will pay for home insurance and whatever else is necessary.

I've read the discussions about paid off properties and various ways to leverage them. I do have a plan in mind for the property under the LLC but for the most part, the plan is very conservative since my parents are still living there.

At a very high-level, the expenses for the LLC in regards to the house would be: annual property taxes, home insurance, and utilities. Income would be rent from my parents which would would even out the expenses.

I am more interested on how taxes for the LLC would be like at the end of the year.

My questions:

1. I understand that, as an individual tax payer, there are considerations for rental properties vs. personal/vacation properties and cases where expenses will not be deductible. Do the same rules apply to the LLC? For example, would I be able to deduct the annual property taxes, insurance, and utilities costs?

2. Are there any legal issues with an LLC renting out a property below market value?

3. I file taxes married/jointly. All income and losses for the LLC would pass-through to our taxes, right?

Thank you.

@Tony Velez, @Vincent Smith - I am currently using Cozy. It is free for a single rental and there is a charge if you have more properties (I believe). I use it for only rental payments but it also offers advertisement, screening, credit card payments (fees paid by tenant), etc. The only downside to it is, if you set up to withdraw from your tenant's account on the first of every month, then you won't see the money until the 10th-15th of that month. I used WilliamPaid prior which offers similar services and the deposit is in my bank account within a couple of days but their service terminated maybe 2 years ago.

I also agree with those who suggested to just having a conversation with them about payments. 

Good luck!

Our lender has a program that allows children to help out elderly parents with their mortgage through a refinance process. There are some guidelines for "elderly" but so long as we can show underwriting that our parents meet these guidelines, then the lender would allow the child to take over the remaining balance of the loan. Title, deed, etc. will be under the child and the parents can continue living under the property. Of course, the child must also qualify with the lender first.

My concern about this process is how it affects gifting and the cost basis of the home for the child. For example, let's say for simplicity, that the cost basis of the home for the parents is $100k and they have a balance of $50k. The child qualifies for the $50k refinance and the parents meet the "elderly" guidelines. The fair market value of the house is $150k at the time of refinance/acquisition. The child assumes the mortgage, title, deed, etc. to the home. 

Does this mean that the parents just gifted the child $50k (or $100k per fair market value)? 

Is the cost basis of the home for the child $50k (refinance cost), $100k (parents' cost basis), or $150k (fair market value)?

Realtors, bankers, and the BP community with experience with buying and selling primary residences simultaneously:

My parents are looking to downsize their current home. The county's assessment for the home is $430k and other similar properties recently sold for upper $400s and $500s in the neighborhood. They have roughly $80k left on the mortgage (<5 years left). The area they are looking to buy has properties in the $300s. 

My parents want to either put in a contract to buy with a contingency that they need to sell their current residence first; or, sell their current property and rent (storage and living) while looking for a new home. We haven't spoken to a Realtor yet and one of the many questions for the Realtor would be how a transaction like this would occur. 

I would like to ask for the community's input on the following:

1. If they sell first, they would pay off their mortgage and the remaining (post closing) amount is theirs to, for example, put in a cash offer on the new home. Where and how should they store this money prior to making the purchase? They would also like access to this fund to cover the rental (storage and living) costs until they can make a purchase.

2. What are the pitfalls that they should watch out for either buying then selling or vice versa? Mistakes Realtors, settlement company, sellers, etc. may make.

3. My parents and I could pull our funds together and pay off the mortgage. For simplicity, let's assume that whatever fund I contribute would be a gift (with consideration to the federal gift tax) and there would be no repayment. Would there be any benefit to paying off the current mortgage first?

Thank you.

CPAs and the BP community with input/knowledge/experience with large monetary gifts:

New Estate and Gift Tax for 2016

Sometime in 2016, my wife and I would like to give my parents a large sum of $40-60k as a gift. I understand that we can give a maximum of $28k to each donee for the annual exclusion amount. My wife and I file taxes as dual income, married for Virginia. Ditto for my parents. 

My lack of understanding involves the "applicable exclusion amount for gifts" from the above article, and maybe we're misunderstanding the annual gift exclusion as well. 

For the annual gift exclusion, it seems like we can give each of our parents $28k without any federal gift tax due on our part. Do they need to file the combined $56k as income?

For the applicable exclusion amount of $5,450,000 (2016), it seems like we can give them the entire $60k (or more) since, after subtracting the annual gift exclusion, it would be well under applicable exclusion amount of $5,450,000 (2016). There won't be any federal gift tax for the $60k gift. Is this a correct understanding? Likewise, do they need to file the $60k gift as income?

We do plan on consulting with a lawyer/CPA firm prior to pulling the trigger on this transaction. We are doing out initial research on understanding the process and greatly appreciate any input.

Thank you.