fha loan, primary residence 3 years, convert to rental

Starting Out
13yFollow

fha loan, primary residence 3 years, convert to rental

Cindy Konopasek
Yankton, SD · Member since 2013 · 5 posts · 0 votes

This is my first post to this site. My husband and I, along with our daughter, purchased a townhouse. My daughter qualified for an FHA loan as a first time home owner along with the stimulus plan.

She has lived in the townhouse for over 3 years. She would like to rent out 2 of the bedrooms , like a "little" landlord. Since we own this property together, would we need to form a LLC, partnership, with a predetermined percentage of ownership, say 35, 35 , 30%.

At this point she would be able to deduct at least 30% of whatever percentage of the house is being rented out. (depreciation, expenses, etc.)

My husband and I would be able to use the other 70% for property tax and mortgage interest on our taxes. We make over 150,000 so other deductions (depreciation, expenses) would not benefit us at this time.

Our goal is to get our real estate license and become more knowledgeable in the real estate business so that we would be able to benefit from all of the rental deductions, as we acrue more rentals.

The only thing is that we are not sure if we can make the townhouse a rental property if my daughter discontinues to live there because of the FHA loan. Currently it is her primary residence.

I would appreciate any replies or suggestions regarding these topics.

Thank you,

Cindy

0Reply
43 views

Most Popular Reply

Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y

As far as the LLC and taxes I'm not sure, I've partnered with my parents but the properties were always entirely investment and none of us benefited(lived there ect).

As far as your daughter moving out, it is not a problem the stipulation on OO is that you move in within 60 days and continue living there at least one year. Since you say you bought 3 years ago then obviously you have passed that test.

1Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    As far as the LLC and taxes I'm not sure, I've partnered with my parents but the properties were always entirely investment and none of us benefited(lived there ect).

    As far as your daughter moving out, it is not a problem the stipulation on OO is that you move in within 60 days and continue living there at least one year. Since you say you bought 3 years ago then obviously you have passed that test.

    1Reply
  • Cindy Konopasek
    OP
    Yankton, SD · Member since 2013 · 5 posts · 0 votes
    13y

    Matt,

    Thank you for your reply. The stimulus package for first time home owners has been a bit of a grey area due to it being a one time thing that many (including ourselves) took advantage of. However, we really did not plan on what our options would be down the road. We are down the road 3 years now and ready to learn more about real estate. Wish I would have learned more sooner.

    But you are correct, we have completed the OO requirements of the loan. So we will move forward as we learn.

    Thank you again.

    Cindy

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    I see what you're concern is, this is from the IRS website FAQ's for home buyers credit:

    Q. When must I pay back the credit for the home I purchased in 2009?
    A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009, 2010 or early 2011. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased to be your principal residence.

    Apparently 2008 it is 15 years from what I saw

    0Reply
  • Cindy Konopasek
    OP
    Yankton, SD · Member since 2013 · 5 posts · 0 votes
    13y

    Matt,

    Actually because the townhouse was purchased in 2009 the tax credit was $8000 and it does not need to be repaid if the house continues to be the primary residence for 3 years. Our daughter has lived there from Aug 2009 - current. Our plan is to form an LLC in 2013 and then she will use it as a residence and rental.

    With your parents, do you have a LLC and then you are all partners?
    My husband and I have another LLC, which is a sole propriertership, but with all three of us in the LLC then I think we need to be partners.
    Just wondering.

    Thank you again Matt.

    Cindy

    0Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    I do see the issue of due on sale if you try to transfer the property to an LLC, exposing yourself to finding an investment loan quickly if FHA decides to challenge it. We converted our FHA primary residence to a rental when we moved for work 2 years later, but it stayed in our names, no transfer to an LLC. Just make sure you're prepared if they call it.

    0Reply
  • Michael S.
    Rental Property Investor · Beaufort, SC · Member since 2013 · 82 posts · 7 votes
    12y

    @

    I am considering a similar deal to what you and you daughter did.

    Did your daughter pay you rent for your ownership portion of the house? Did you and your husband take depreciation or any other writeoffs from the house?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free