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My wife and I have decided to downsize from our larger home…

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My wife and I...

My wife and I have decided to downsize from our larger home to a midsize condo in Florida. However we cant get the condo until we sell our house- which may take 6 months. We have picked a nice condo, and our son has said he will buy the condo now, rent it out until we sell the home, then he can either continue renting it to us or we can get a new mortgage and buy it from him. The question is how do we title the condo now so we minimize the tax consequences to both of us. I have some thoughts but need a professional to discuss this matter. Any suggestions?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

If we title it in his name, then we will pay rent which I believe is not tax deductable like a mortgage, and he will have rental income which he will have to pay tax on- seems like we both get taxed. Alternatively, if he just gives us a bridge loan, which we would pay interest on for a short period, and we title the house in our name and mortgage it when we sell our house, then we get to deduct our mortgage payments and he gets his money back without penalty (return of principle) and he only has to pay taxes on the interest from the bridge loan. Seems like a better alternative- any thoughts?

Submitted: 4 months ago.Category: Tax
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Answered in 5 minutes by:
12/13/2017
Tax Professional: emc011075, Tax adviser replied 4 months ago
emc011075
emc011075, Tax adviser
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Satisfied Customers: 3,595
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi. My name is ***** ***** I will be happy to help you.

To avoid any title transfers later you can buy the condo with your son, you and your son as owners. He can rent it in meantime, claiming the rental income and deductions and when you are ready, you can remove the tenant and move in. Than your son simply quitclaim the property to you or your wife.

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Customer reply replied 4 months ago
Thank you Eva- do you agree with my assumptions on the tax penalties if we just title it in his name? John
Customer reply replied 4 months ago
Is the $52 in addition to the charges I am already paying?( Which are what?)
Tax Professional: emc011075, Tax adviser replied 4 months ago

You are correct, you cannot deduct rent payment but you also cannot deduct mortgage payments, only the interest. He can, on the other had deduct the interest from the rent payment he will receive. However, the problem is that if you rent a place to a relative or friend below fair market value, your deductions will be limited to the amount of rent received.

You want to avoid "renting to relative" situation.

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