Buying a house for Mother In Law

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Buying a house for Mother In Law

Cameron Kirby
Member since 2018 · 3 posts · 1 vote

Need some advice. So currently my in-laws are getting ready to sell their house and go their separate ways, while staying legally married. He will most likely need to file bankruptcy here in the near future (credit cards) while she is on Social Security Disability so her ability to support herself is very limited. My question is if me and my wife buy a small house, or trailer under our names and allow her to "rent" it from us for much below market, what are the legal/tax implications of this. From my understanding we could not claim it as a rental property for taxes and it would be designated as "personal use" by the IRS. Is there any thing else I need to be aware of from a legal side of things? Any advice would be greatly appreciated. Thank you. 

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    My advice and the advice you will hear from experienced investors is don't do it. Family and money should never mix. If you want to buy her a place to live in do it but don't rent it to her just give it to her, sign it over to her name and let her have at it. 

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  • Cameron Kirby
    OP
    Member since 2018 · 3 posts · 1 vote
    7y

    My only concern with putting it in her name is when/if my father in law declares bankruptcy. If they are still married, they are not getting divorced so I am worried about creditors coming after her. He is also not in the best of health(don't think he will make it more than a year or two) so I am worried about creditors coming after her. I am hoping that if she has no assets they will be more likely to leave her alone about the money he owes. 

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y
    Originally posted by @Cameron Kirby:

    Need some advice. So currently my in-laws are getting ready to sell their house and go their separate ways, while staying legally married. He will most likely need to file bankruptcy here in the near future (credit cards) while she is on Social Security Disability so her ability to support herself is very limited. My question is if me and my wife buy a small house, or trailer under our names and allow her to "rent" it from us for much below market, what are the legal/tax implications of this. From my understanding we could not claim it as a rental property for taxes and it would be designated as "personal use" by the IRS. Is there any thing else I need to be aware of from a legal side of things? Any advice would be greatly appreciated. Thank you. 

     This might qualify as your second home If transaction between you guys are structured properly. If so, you might Able to deduct the interest and the property taxes for the house In your personal tax return. I’m guessing you don’t have any other houses. You also have to factor in the property taxes (capped at 10k )limitation and Mortgage is limitation for interest deduction. (Mortgage is in total cannot be more than 750 K)

    So in total if  expenses of the real estate taxes and the mortgage interests on your personal residence and the second house that you are renting to your mother-in-law at below market rent Is greater than 24,000 (standard deduction) then you will benefit from paying those for the second house.

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