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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 53710
Experience:  29 years of experience as a tax, real estate, and business attorney.
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My parents own a stand-alone medical building. My

Customer Question

My parents own a stand-alone medical building. My mom uses one of the spaces in the building for her dental practice. They have allowed me to rent out the other two office spaces to other medical professionals and keep the entire rent income for myself. They obviously don't want to pay double tax on it. How should we go about filing taxes?
Submitted: 5 months ago.
Category: Tax
Expert:  Richard replied 5 months ago.
Good evening. My name is ***** ***** I look forward to helping you. First, you don't need to worry about it being double-taxed. The question is who do they want to incur the tax burden. If they are willing to pay the tax, then they would treat is as their income and then treat the payments to you as gifts to you of the income they receive. Gifts are not income under Section 102 of the Internal Revenue Code. And, there would be no gift tax consequences. Recipients of gifts are not subject to gift tax. And, there should also be no gift tax due from the donor. Each donor can give $14,000 per year per person under the annual gift exclusion. In addition to that, for any amounts in excess of the $14,000 in a year, each person has a $5,450,000 lifetime exemption....which means a person can give a cumulative amount of up to $5,450,000 in gifts over and above the $14,000 annual gift exclusion amount without incurring gift tax....the donor must file a gift tax return to let the IRS know how much of the lifetime exemption is being used, but there will be no gift tax until cumulative additional gifts have exceeded the $5,450,000. If they want you to incur the income, they would treat it as a payment to you for your services and then be able to take the deduction for the payments to you against the income which would offset the income to them. 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!
Customer: replied 5 months ago.
My parents have already used up the gift tax limit per year for my trust fund. They would like me to pay taxes on the income I earn from renting out the office spaces. However, since they own the building, how should I go about paying the taxes? I'm not the owner of the building, but I will be getting the income from rent per month.
Customer: replied 5 months ago.
Supposing I get $100,000 per year for renting my parents property. Can I show the total $100,000 as my service fee for renting out the office spaces? My usual management fee is 2-3% of the rent. But can they give me the entire rent and I show that, that is my fee? (Can they show $100,000 as fee)
Customer: replied 5 months ago.
Will the IRS object to that?
Expert:  Richard replied 5 months ago.
Thanks for following up. First, on the gift situation, they can give an additional $5,450,000 each over and above the annual gift limit before there would pay any gift tax. To shift the income to you so you pay the tax, they can pay you a fee for managing/leasing the property. This would be income to you and would give them a deduction which would offset the rent income to them. The IRS would have no objection to this.