Tax Implication Of Buying Property With One's Parents
Hi,
I'm new and ignorant. I am interested in purchasing land and a manufactured home with my parents. I would live in it and make all payments. My parents would simply be co-signers because they will qualify and I will not. What are the tax implications for this? Specifically, who gets the deduction? Would there visits to the property be tax deductible, as we live on opposite coasts? Any good reference materials for newbie buyers?
Thanks, Kristi
Quote:I'm new and ignorant. I am interested in purchasing land and a manufactured home with my parents. I would live in it and make all payments. My parents would simply be co-signers because they will qualify and I will not. What are the tax implications for this? Specifically, who gets the deduction? You do. You live in the property, make all the mortgage payments, and I assume you are the primary borrower named on the mortgage note (i.e., your SSN is used for IRS reporting). You will receive the 1098 year end mortgage interest statement, and you (or your mortgage escrow account) will pay the property taxes. The property tax and mortgage interest deductions are yours.
Quote:Would there visits to the property be tax deductible, as we live on opposite coasts?In this scenario, your parents are only co-signing the note as guarantors in the event you default. They are not purchasing the property. Their visits to your property are really personal visits to you, and not tax-deductible.
The other thing you need to be careful on is liability and asset protection. If anything happens on your premises and you do not carry enough insurance, then whoever has sued you can go after them as well, since their name is on the deed.
Lethe,
Nothing was said about parents on the deed. They are only co-signing the mortgage loan.
But you do bring up a good point. If the parents will also be co-owners, then the parents also need to be named as additional insured on the homeowners insurance as well.
Kristi, since California is a Trust Deed state there will be not only a Promisory Note but a Deed of Trust as well. I have seen loans where the co-signers are only included in the Note (the promise to pay) and not in the Deed of Trust. If this is the case in your situation, then your parents would not be liable for anything that happens on the property, you would be and should be since you live there. As far as who gets the tax benefits, it really depends how things are set up with the lender that reports the interest payments to the IRS. Typically they will send the notification based on whose name appears first in the note. They will use the corresponding social security number as well. If your name is not the primary one, then you can send a letter to the servicer of the loan signed by you and your parents in which you ask them to change the name positions so your name appears first. This should not be a problem since there is no release of liability of any sort. Good luck!