Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-19-2010, 11:35 AM
Junior Member
 
Join Date: Mar 2010
Posts: 1
is there a penelty for below market value?

We are thinking of buying a house and renting it to our daughter. We do not want to list the rent as income as it would be just enough to cover the mortgage and taxes etc. Is this ok? What about if we did a long term lease, and the daughter paid the taxes and such. Will we penalized for not charging Fair Market Value?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 11-06-2010, 02:39 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,236
"We do not want to list the rent as income as it would be just enough to cover the mortgage and taxes etc. Is this ok?"--->Sorry. But no. Itis not OK;the house is considered to be your personal residence, not rental property.To be a rental property, you must charge an appropriate market based rent.But as you said, you do not wanna list the rent as inocme. As you are letting your daughter live there almost rent-free( I mean your daughter actually pays rent but you don't want to list it). So, you can not deduct the regular expenses,i.e., taxes, casulaty and theft losses, utilities, or annual accumulated depreciation expenses or etc. that you could otherwise if you charged market rent and list the rent form your daughter as your rental income. The house is your personal residence for tax purposes, a vacation home, not rental property. So, you can deduct both taxes and mortgage interest expenses on your SCh A as your itemized deductions if you claim'em.You can't file your Sch SE for the property for deductions of other expenses.
Also, if you are providing your daughter with free rent, it is a gift for your daughter;UNLESS you made a huge gift(s) exceeding $1.13,000 million ( assume your daughter is only your donee), you are not subject to gift taxation. However, you cannot charge her market rent and gift it back to her. Perhaps, the IRS would see through that ploy and would disallow it for the straw transaction that it is.
" Will we penalized for not charging Fair Market Value?"---> No. As said above,if you want, you may not charge fair market rent to your daughter and give her free rent. Then your property is considered to be a personal residence, not rental property,and you may be subject to your gift taxation if you made a huge gift excedding $1.13,000million before ( I assume that your daughter is onltyour donee) as said above.


Last edited by Wnhough : 11-06-2010 at 09:34 PM. Reason: to insert a word


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Below-Market Rental to Father Jerry Fitzburn Income 2 01-26-2009 12:36 AM
There is no strategy for this dire market! The market confidence has been wrecked! Pancho Investment Strategy 1 11-04-2008 09:41 AM
The market just crashed man, not down 250-300 but down -748 pts! UGLY! marian Investment Strategy 0 09-29-2008 04:18 PM
What?? Market suffering another 275-300 pts decline again? Wayne Investment Strategy 0 09-29-2008 11:16 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning