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Old 04-15-2013, 03:01 PM
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Tax liability on a rental house for daughter

My father is considering buying a house for me to rent, to take advantage of the low interest rates and housing market in my area. I would rent it for the cost of the mortgage, and would purchase the house from him when I can qualify for a loan. He has a mortgage on his primary residence and owns a second home outright. What would be his tax liability on the rental/investment property? What could he reasonably expect to pay in taxes in this situation? I need to find this information so we can discuss the financial impact, and judge the amount of a loan we can handle, as I will be responsible for paying him back for any additional taxes.

From what I gather he would have to pay taxes on any income over and beyond the mortgage interest. For example, If I pay him $6000 in payments (cost of mortgage) and the interest is $5000, then his income is $1000 and he would pay a percentage of based on his tax rate. Is this correct?

Are there any tax issues that could arise when I purchase the house from him later? He would sell it to me for what ever the balance is at that time and I would cover all closing costs.

Thanks for your help!



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Old 04-16-2013, 02:25 AM
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“My father is considering buying a house for me to rent, to take advantage of the low interest rates and housing market in my area.
“I would rent it for the cost of the mortgage, and would purchase the house from him when I can qualify for a loan. He has a mortgage on his primary residence and owns a second home outright. What would be his tax liability on the rental/investment property? “=================>Basiclly, the rental income your father receives from renting out his home to you must be reported on your father’s tax return. The expenses i.e., r/e taxes, mort int, ins, repair, utilities, depre for the home can be deducted as expenses. These must be reported on the IRS 1040 , Sch E form and submitted with your father’s tax return. I assume that he rents it out to you for the whole year (without personal use).However, when he disposes it later to you either as rental home or primary home, he needs to recapture unrecaptured depre taken previously as ordinary income taxed at 25% as long as his marginal tax rate is lower than 25%. However, your father must charge fair-market rent (taxable income to him) to you; On the other hand, if you get rent lower than fair mkt rent, then it is a gift for you ;as long as the difference of the amount between fair mkt rent and your rental exceeds $13K for 2012/2013, I guess, then he needs to file Form 709 to report his gifts to the IRS.

“What could he reasonably expect to pay in taxes in this situation? I need to find this information so we can discuss the financial impact, and judge the amount of a loan we can handle, as I will be responsible for paying him back for any additional taxes. “================>As long as he has positive number on Sch E line 26, he needs to report it on 1040 line 17 as part of his gross income reported on line 22 of 1040.And the rental income is taxed at his marginal tax rate.I guess you can see Sch E line 26 and 1040 line 17 .
http://www.irs.gov/pub/irs-pdf/f1040se.pdf
http://www.irs.gov/pub/irs-pdf/f1040se.pdf



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