How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Richard Your Own Question
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 54839
Experience:  29 years of experience as a tax, real estate, and business attorney.
Type Your Tax Question Here...
Richard is online now
A new question is answered every 9 seconds

My dad, husband, and I own the buildings from which we

Customer Question

My dad, husband, and I own the buildings from which we operate our two store(s). Our names are ***** ***** relatively small mortgage we used to renovate my building a couple of years ago. One store is now closed and is being used as our warehouse. The Sleep Shop paid my dad rent for many years, rather than his taking a salary. I have always been a salaried employee, and frankly I prefer it that way. Now my dad wants me to be the president, he no longer wants to be paid the rent. My Dad doesn’t like to pay taxes, and he wants to earn very little. Instead, he wants me to be paid the rent, and then pay the mortgage on the buildings from the rental income. I would also be responsible for all the taxes, etc. on the properties.
I knew all this was coming eventually. I had thought that when I became king, I would just pay the mortgage out of the store’s account like a normal business expense. I cannot understand why this is unacceptable. My accountant says this is not acceptable. She said that I had to pay the mortgage personally. If I have to claim all that extra income, it will push my husband and me into the highest tax bracket. I read online that I could possibly create my own LLC for renting the buildings to the store. Is this something to consider? Thanks!!
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

Hi from Just Answer. I'm PDtax. I can assist.

Expert:  PDtax replied 1 year ago.

There is something I don't quite understand, although I get the 'tax planning' that Dad has in mind. Happens in my practice all the time.

How are the buildings owned, in a partnership with the three of you, or do each of you own a building?

If Dad owns the building, and collected rent, that works great. I don't quite follow how he wants to not collect the rent now, and still own the building, and somehow pass the rental income reporting to you.

I could suggest that he sell you his interest, which would allow you to deduct against the cash rents paid to you, and he could report capital gains on his sale, cutting his taxes.

If instead this is just a shift of income onto you return, and you are then supposed to forward him the rent, that's the kind of 'tax planning' I see from a retiring generation pretty regularly.

Please confirm what is being proposed, and I will come up wih some options.

Since this is beyond th scope of our traditional questions to be answered, I will post an Offer of Additional Service for a small price increase for the time we will need to spend. Accept, and outline the facts so I see the second half of what is proposed, and I will assist.

Expert:  PDtax replied 1 year ago.

Hi again. PDtax here. Since my Offer did not meet your needs, I will opt out.

Expert:  Richard replied 1 year ago.

Hi Lora. My name is ***** ***** I look forward to helping you.

There's a couple things here. The principal portion of a mortgage payment is not deductible; only the interest. If you own the building and you pay the mortgage, then you can deduct the mortgage interest. You do need to report the rent as income, BUT, with the other expenses related to the taxes, maintenance, insurance, etc....and the depreciation of the building, you should be able to offset most of the income from being taxed. Also, any net profits that you do end up with, even if you pay the top marginal tax on that income, it doesn't make all your other income taxed at that top marginal rate, and it's still be to get $1 in net income and pay 39% on that leaving you 61 cents than it is to not get the $1.

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as OK, Good or Excellent (hopefully Good or Excellent). Otherwise, I receive no credit for assisting you today. I thank you in advance for taking the time to provide me a positive rating!