Discussion:What is a second home?
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Discussion Forum Index --> Tax Questions --> What is a second home?
| 2 April 2007 | |
| New client (older man) owns a second residence. His adult son lives there, raises his family there, has been there for years. The new client has always paid all the home related bills: mortgage, taxes, etc. And, has always deducted the mortgage interest and property taxes on Schedule A as a second residence.
Hmmm. It this the way it goes down? Sounds like the FMV rent would be a gift to the son, and would be rental income on a Schedule E for the old man. What would you tell the guy? | |
| 2 April 2007 | |
| That's an interesting view on it. We own a cabin, and one person or other from the family is there all the time, but we pay all the expenses, and consider it a second home. I really don't think I should be considering this gifted rent to family members, nor do I declare rent (what would I declare - vapor-gift-rent?).
IMHO, this is still a second residence. Oddly, in MN, he could probably have the son homestead it for him and get reduced property taxes. Now there's a bit of useless trivia for you. | |
| April 2, 2007 | |
| Kendrick - If the FMV rent is treated as a gift, he wouldn't include it as rental income on Sch E. It's one or the other. If treated as rental income, expenses can only be deducted up to the amount of the FMV rent. If treated as a gift, the interest and property taxes can be deducted on Sch A. | |
| 3 April 2007 | |
| Deback, are you sure?? I would have thought if the new client is paying all the expenses and gifting the rent, that it would lack profit motive and wouldn't allow a loss?? No? | |
| April 3, 2007 | |
| If he only owns two homes with mortgage interest, I see no problem with deducting the mortgage interest and property taxes paid on the 2nd home on Sch A--that is, if he is considering the FMV rent to his son as a gift, and if the value is $12,000 or less each year. | |
| 3 April 2007 | |
| So, let's say the son paid his Dad $1000 a month with a check, the FMV of the rent. Then at the end of the year, the Dad gave his son a $12000 Christmas gift. Would you pick the $1000 a month as rental income on a Sch E? And if so, what is the difference between this and the original scenario? That is, in theory?
Anyway, so it sounds like the consensus is you can own a second home, and let anyone you want live in it rent free if you choose, and deduct the mortgage interest and property taxes on Schedule E. I will write again if I find otherwise. Thanks for all input. | |
| 3 April 2007 | |
| A) If you rent out the house, it is not a 2nd home.
(at least to the extent where you can deduct all interest and taxes). B) Where is the profit motive? | |
| 3 April 2007 | |
| I was going to write in:
Why would anyone ever have your hypothetical exchange of monies? Then I got to thinking about all the weird things clients do, and I'm now waiting for just this situation to walk in the door :-). | |
| 3 April 2007 | |
| Lp820 writes:
>A) If you rent out the house, it is not a 2nd home. >(at least to the extent where you can deduct all interest and taxes).
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| 3 April 2007 | |
| i have the same case as kendrick's client except that the son pays all house expenses. the father bought the 2nd house because he had a better credit rating than the son. what's the best way, the father to deduct interests & taxes on his tax return or the son to deduct them since he paid for everything? | |
| 3 April 2007 | |
| Jtax, I agree. Sorry for the confusion. My response was to Kendricks question about receiving FMV Rent. If the owner is receiving FMV rent from a family member who lives their, is it not limited to the amount of rent received? | |
| 3 April 2007 | |
| If the rental is at FMV to a non-related, non-owner then of course it is a normal rental.
There is also a case that says it is reasonable to give a 20% discount to a family member and still have the rent be considered FMV (rationale is less risk, better tenant). I don't have the cite handy but I believe it is a non-binding case.
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| 3 April 2007 | |
| Jtax
Ok, I'm with ya. Now going back to the orginal question then, if the owner claims he is gifting FMV rent to his son, can that change it from a 2nd home to a rental? Meaning he would be able to claim other deductions besides interest and taxes? Thanks for your input. | |
