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Old 11-21-2011, 05:44 PM
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Rental Income to Sibling

Hello - I have a question on the tax implications of rental income from a sibling who is a part owner of the property (I know this sounds strange).

I purchased a condo with my sister a couple of years ago and I am the sole person on the mortgage (although her name is included on the deed for the property). While I have been using the condo as a primary residence and taking mortgage deductions, I have since gotten married and want to potentially purchase a new home with my wife. If and when that happens, my sister will be moving into the condo. I am wondering whether I can "lease" her the apartment while receiving rental income and continuing to deduct the mortgage interest (and also deducting the mortgage interest of my new primary residence). Are there any complications to this since she technically is an owner of the property? And would I be able to charge her a below market rent so that I don't recognize any net income (i.e. charge her the amount of the mortgage interest as rent)?

Thanks in advance.



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Old 11-21-2011, 11:07 PM
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Quote:
Originally Posted by nmp2001 View Post
Hello - I have a question on the tax implications of rental income from a sibling who is a part owner of the property (I know this sounds strange).

I purchased a condo with my sister a couple of years ago and I am the sole person on the mortgage (although her name is included on the deed for the property). While I have been using the condo as a primary residence and taking mortgage deductions, I have since gotten married and want to potentially purchase a new home with my wife. If and when that happens, my sister will be moving into the condo. I am wondering whether I can "lease" her the apartment while receiving rental income and continuing to deduct the mortgage interest (and also deducting the mortgage interest of my new primary residence). Are there any complications to this since she technically is an owner of the property? And would I be able to charge her a below market rent so that I don't recognize any net income (i.e. charge her the amount of the mortgage interest as rent)?

Thanks in advance.
To deduct interest on the debt, you must be legally liable for the debt as the primary borrower as you are legally obligated to pay the debt and you actually make the payments. However, as long as your sister has an ownership interest in the condo, may also deduct mortgage interest paid( if it is paid) by her even if not named on the loan . If not, she can’t deduct mortgage interest. You can also deduct your mortgage interest expenses on the other residence. You can have only one primary residence, either the condo or the new residence. Mortgage interest on a second home can also be deducted. How can you lease the condo(receive rent) to(from) your sister her name is also included on the deed as a co-owner?? You may receive a quitclaim deed, a written document that is needed in order to transfer title in the condo from your sister to you. Your sister may need to file a gift tax Form 709, even if no gift tax is due, if payment to her is significantly less than fair market value as long as the FMV of her interest in the condo exceeds $13,000, then she needs to file Form 709 on her 2011 return, but she doesn’t have to pay ate gift tax unless she made a gift exceeding more than $1.13,000 million with one donee before or in 2011 alone. Then you may charge rent to your sister as a sole owner of the condo.


As long as you are a sole owner of the condo, then you can.; however, the below market rent is STILL part of your taxable gross income on your return. Also, while the IRS hasn't been auditing heavily for this;the below market rent would need to be less than $1000 a month( if the annual below market rental value is $13,000 or less than the amount for 2011,then you do not need to file the IRS Form 709) not to create a gift tax issue.It (lower market rent) is a gift of something for value. Gifts don't have to be cash.



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