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I have an apartment building. The depreciation has run out.

Customer Question
I have an apartment...

I have an apartment building. The depreciation has run out. Can I lease the whole building to my daughter for the rest of my life. She will manage and pay taxes on the profits. I will charge her a lease fee and pay taxes on it. She will expense the lease fee. She gets stepped up basis when I die. Is the IRS ok with that.

Accountant's Assistant: Because laws vary from place to place, can you tell me what state the property is in?

CA

Accountant's Assistant: Has any paperwork been filed?

Nope. and this will be private deal. no filing except taxes as mentioned

Submitted: 7 months ago.Category: Tax
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Answered in 19 minutes by:
11/30/2017
Tax Professional: emc011075, Tax adviser replied 7 months ago
emc011075
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Hi. My name is ***** ***** I will be happy to help you.

As long as you charge her fair market value and you sign a lease agreement you can claim the lease payments and she can deduct it. That's not a problem.

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Customer reply replied 7 months ago
Hi Eva,
So let me ask you what the fair market might be. In this case the net annual profit is $75000. I currently do my own property management i.e. Tenant replacement, rent collection, bookkeeping, manage maintenance and improvements, on site tenant issues, prepare income taxes. My daughter will do the same. I would suggest, therefore, she pays me $15,000 and keep the $60,000 for her labor. Do you have any experience on what the iRS would consider fair market value?What lease format would you suggest. Can you send me a blank lease?Thanks,
Craig
Tax Professional: emc011075, Tax adviser replied 7 months ago

The fair market value is the current market rate. How much would you lease it for to a stranger, somebody who is not related to you. Check with a RE leasing companies or find a RE agent specializing in leasing properties. The IRS will be looking for comparables. What did you use to determine your lease rate?

Would you lease it to him/her for 15K? It sounds little low, especially if the profit (after expenses) is 75K. And who will be deducting property taxes? If she does not own it, she will not be able to deduct it and you deduction may be limited as well.

It may be a better to create an LLC or run it as a partnership (or LLC partnership). The partnership will claim all income and expenses and you can decide how the profit will be distributed. It does not have to be 50/50.

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Tax Professional: emc011075, Tax adviser replied 7 months ago

Any questions? Is there anything else I can help you with today?

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