Rental lease tax strategy

2 Replies

My client has a paid off house in an affluent neighborhood in a nice suburb of Las Vegas.  It is a relatively luxurious place and could rent for a significant amount.  He is considering leasing to his son, who is in a lower tax bracket , to sublease to potential a customer for income.  He is perfectly fine with his son keeping the profit, legitimately.  Does this comply with the law and can he put the tax burden on the son for income.

He has to charge “market rate” for it to be a legitimate lease. Hard for the son to then turn around and charge above market rent. 

If he has huge appreciation (bought anytime 3-10 years ago) sell and take the tax free money, he can give his son the money to buy a rental if he wants. 

If he bought recently (less than 2 years ago) he could get a cash out refi on the property and then rent it out. He probably wouldn’t show a taxable profit after interest, property taxes, insurance and depreciation, especially if it’s truly an affluent neighborhood. 

$20k or more in depreciation wipes out most rental income. 

Or just gift it to the son and file a gift tax return, charging against lifetime limit (50/50 with spouse on gift, so that's 1/2 value against the $5.5 million each has in estate tax exemption).

Or just gift the kid the income (but that doesn't get around paying taxes at his rate, in the first place).