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If my mom puts me on the deed to her house for $1. There is…

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If my mom puts...

If my mom puts me on the deed to her house for $1. There is no mortgage on the house. Can I claim it as an investment property and use its deductions. I will not be living in the house. My mom will continue to live there and pay me rent.

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I plan on taking out equity loan on the property after being put on the deed. Paying off with monthly rent income from mom still living there. Can I claim the deductions

Submitted: 6 months ago.Category: Tax
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8/4/2017
Tax Professional: emc011075, Tax adviser replied 6 months ago
emc011075
emc011075, Tax adviser
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Hi. My name is ***** ***** I will be happy to help you.

Generally, if you have a family member or other relative using the property you cannot treat it as investment property. To be treated as a rental property she will need to have a formal rental contract and she will need to pay you a market rate for the rent. Any loan taken against the equity that is not used to improve the property will not be deductible and you will still need to claim the rental income.

You may be able to depreciate the property but your basis for the depreciation will be lower of the current fair market value or your basis (if received as a gift, the cost of the original owner).

Do you know how much your mother paid to purchase/improve it?

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Customer reply replied 6 months ago
My mom who owns the house now. Has a private note for 215k to my grandmothers estate. Who the house originally belonged to. Recently deceased. There has been significant money spent on repairs / improvements.
Tax Professional: emc011075, Tax adviser replied 6 months ago

So she inherited the house. In that case 215K plus any improvement done after she inherited it would be her cost basis you will need to use.

Here's the catch with the depreciation. Any or most of the depreciation you take over the years will become income in the year you sell it taxed at the higher 25%. You are required depreciate the property but you have some flexibility to decide how much you want to depreciate.

A rental property is depreciated over 27.5 years, meaning you can write off 1/27.5 every year of the value.

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Customer reply replied 6 months ago
I am using the equity loan to payoff the private note held by my grandmoms estate. My mom did not inherit the house She bought it in 2014 for 215,000.
Tax Professional: emc011075, Tax adviser replied 6 months ago

Ok. In that case 215K + any improvements she made after 2014 will be her and your cost basis. Paying off a note held by the estate will not help to improve or acquire the property so you will still be nondeductible.

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Customer reply replied 6 months ago
What if paying off the note with an equity loan was part of the agreement to putting my name on the deed. Would that be considered as contributing to acquiring the property and than egible for deductions ?
Tax Professional: emc011075, Tax adviser replied 6 months ago

You can only deduct interest on a loan that was used to purchase or improve the property in some way. If the property was foreclosed or there was a county lien for unpaid property taxes you could get a loan to "save" your property. In that case the interest would be deductible. Taking a loan to pay off the estate will not "save" the property that is transferred to you for $1

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Tax Professional: emc011075, Tax adviser replied 6 months ago

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?

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