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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22772
Experience:  Taxes, Immigration, Labor Relations
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I have a question, my parents are senior citizens and the only

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I have a question, my parents are senior citizens and the only income that they have is social security and a small pension that they draw from every month, but they also own some rental property. Now their expenses on their rental property are way more then what they collect in rent which creates them a loss. With that being a business loss for them and then with the little income that they get, the rental property at this time doesn't really benefit them at tax time. So I'm wanting to know what else can they do? I hope this make sense. Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

Hi and welcome to Just Answer!

Assuming your parents actively participated in their rental activity - rental losses - up to $25,000 - may be deducted on their tax return.

Their pension is most likely taxable.

For social security benefits - here is a simple test - take other taxable income plus half of social security benefits - if the total is less than $32,000 ( for married couples filing jointly) - none of their social security benefits are taxable.

 

If their taxable income is negative because of rental losses - they have a NOL - net operating loss.

Generally, if you have an NOL for a tax year, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carry back period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carry forward period). You can, however, choose not to carry back an NOL and only carry it forward.

There are relatively complex rules of dealing with NOLs - so professional help is advisable - here is a publication if you want details and examples - www.irs.gov/pub/irs-pdf/p536.pdf

 

Because your parents do not have earned income (wages or self-employment income), do not have qualifying children, do not pay fo r education, etc - they are not eligible for any refundable credit - and may only recover whatever taxes were withheld form pension. They may however request not to withhold any taxes and will not receive any refund - but their pension check will be larger.

 

Let me know if you need any help or clarification.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22772
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
So then if they go and elect to have no taxes taken out of their pensions, they will still be required by law to file a tax return and most likely just break even because of the rental property?
Expert:  Lev replied 2 years ago.

Their filing requirements are based on their total income.

Assuming they are filing a joint tax return as married couple - generally they are NOT required to file if gross income from rental and pension is LESS than $19000.

The threshold is $21,300 is they both are above 65.

 

Customer: replied 2 years ago.
So with that being said their joint income is more than the $21,300 with pension and rental and they are both over 65, they will be required to file.
Expert:  Lev replied 2 years ago.
That is correct - in this case they are required to file - but might not have any tax liability.
Customer: replied 2 years ago.

Thank you for those answers, now I have another question if your are single and retired and just has social security and pension what is the gross income amount that could determine if you file or not? Thanks

Expert:  Lev replied 2 years ago.

Filing requirements are based on taxable income.

For social security benefits - here is a simple test - take other taxable income plus half of social security benefits - if the total is less than $52,000 ( for a single person) - none of their social security benefits are taxable.

If your only taxable income is a pension - you are required to file if the amount is above $9500.

 

Customer: replied 2 years ago.
Thank you very much, I believe that I don't have any more questions.
Expert:  Lev replied 2 years ago.
You are very welcome.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22772
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Ok, I have one more question to ask in regards XXXXX XXXXX orginial one. Is there a way that on their rental property that it could be transferred over to say one of the kids that has taxable income for them to file it?
Expert:  Lev replied 2 years ago.

Parents may not "transfer" their taxable income.

However they may transfer (sell or gift) the property to one of the kids who will take over and will run rental activity.

Let me know if you need any help.

 

Customer: replied 2 years ago.
Ok, if you gift it to someone what all is entailed with doing that?
Expert:  Lev replied 2 years ago.
The gift is not a taxable income in the US - regardless of the value and regardless of the relation between the donor and the recipient - please see for reference the IRS publication 525 page 34 - http://www.irs.gov/pub/irs-pdf/p525.pdf LEV :

graphic

 

Generally, property or the money someone receives as a gift, bequest, or inheritance is not included into income.

 

For gift tax purposes...

The donor (the person who makes a gift) who is an US person may be required to file a gift tax return if the value of the gift is above $13,000 per person per year. There will not be any gift taxes unless the lifetime limit of $5,000,000 is reached.

Let me know if you need any clarification needed.

Customer: replied 2 years ago.
So, then say for instance if I were the one that would receive the rental property as a gift from my parents so then at that point I would be reporting the rent that I would be collecting through out the year on my taxes and then off setting it with my write offs that I would have like maintenance, electric bills, etc. Then with that all being done then for my parents on their tax return they would file to record the rental property being given as a gift the first year and then after that then they wouldn't need to file a return because the rental property would be recorded on my tax returns going forward. Correct?
Expert:  Lev replied 2 years ago.

That is correct - if they gift the rental property to - you will be the one who runs the rental activity after that moment - and you will report all rental income and expenses on your tax return. Assuming you will charge a fair market rental fees - you will be able to offset your other income with rental losses - up to $25,000 and if your adjusted gross income is less than $100,000.

You may find more details in IRS publication 527 - www.irs.gov/pub/irs-pdf/p527.pdf

Customer: replied 2 years ago.

Ok, Thanks. One more thing if my parents were to do this would this need to be done through an attorney?

Expert:  Lev replied 2 years ago.

That is not required - as that is a transaction between relatives - you may simply do a Quitclaim Deed and transfer the title to your name.

See here an example - http://www.hanscom.af.mil/shared/media/document/AFD-070214-125.pdf

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22772
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you

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