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