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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1732
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Hi, my mother-in-law owns a home that she would like to rent

Customer Question

Hi, my mother-in-law owns a home that she would like to rent out. She lives out of the country, so has asked me to rent and manage the property. She's (lucky for me!) willing to give me and my wife half or more of the rent as "property mgmt fees".

My question is, can this rent be written as payable to me from the tenant, and considered part of my passive income (as tho I DO own the property)? I would be doing the same type of "property management" that I would do on my own property - the difference is I don't formally own this one. The benefit of passive is I can write against some passive losses I have in my own properties.

If this can't be considered passive income, are there creative ways to do this, knowing my mother in law is very flexible? For example, creating an LLC with me and my mom and putting the property in? Could I then flow distributions (from rent) to me, as passive income?

thanks for any creative help!
Submitted: 4 years ago.
Category: Tax
Expert:  Anne replied 4 years ago.
HiCustomerbr />
Thank you for using justanswer. The problem with this type of arrangement is that you are performing a service for an individual, for property you do not own, and that makes this self employment income subject SE tax.

Even if you and your mother in law form a Partnership, the fact that you are providing a service that helps generate income for a property that you hold no legal interest in still makes that self employment income.

Whether the renter writes the check to you personally or your mother in law pays you , the nature and character of the income does not change. It remains self employment income subject to SE tax.

I understand that you already own rental property and you are already essentially doing the same work for the property you own, but that is what makes the difference. You OWN your rental, you would just be providing a service for your mother in law's property.

I know this wasn't what you wanted to hear but I hope it helps clarify things for you.
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1732
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 8 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Ouch, bummer! But not surprised by that answer. Thanks for the quick reply!
Expert:  Anne replied 4 years ago.
You're welcome, and thank you for using justanswer.

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