Partnering On Rental Properties
I was wondering if there is a way to partner with my parents on rental properties where they would get all of the tax write off benefits. We would split the profits 50/50 but I do not need the write offs and they could use them. Any advice would be appreciated.
Ernie
If you will be financing, put it in their name.
For them to get the tax writeoffs (losses attributable to primarily depreciation expense I suspect) they must own the property.
I have a suggestion as to what you can do. Since they're the owners but you'll be wanting to rent the prop to others, what you can do is rent the property from your parents. To keep it simple maybe you can rent it from them for the amount of their principal and interst as well as their prop tax and insurance payments. THen, you turn around and lease it to your tenants hopefully for more than you're paying your parents.
For an end game, you'll have to decide how to split the sale profits if/when the property's sold. So, what I would further suggest is that you do a lease/option with your parents. They lease it to you and you also have an option to buy it from them at an agreed upon price. THe price could even escalate from year to year or it could even be a function of how profitable the property is for example (say....at a 9% cap rate or so).
So, you would report the rental income you receive along with the rental payments you make. You'll also have some expenses possibly including maintenance/repairs. I believe, however, that the tax form you'll complete in this scenario would be a sched C business type situation. It's not on sched E I don't believe.
It's your parents that own the property and report the rental income they get from you and also have as expenses the depreciation expense of the property along with the mortgage interest deductions, insurance and property tax deductions that report theirs on sched E.
Any thoughts from others that may have done this before? I've not done this but have run it through in my mind and am familiar with the tax code enough to go out on a limb and say that this is the way I think it could be done.