I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments. The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them? Is the
interest tax deductible for them or me? I will eventually get a loan
to pay off theirs. If they sell the house to me below market value,
will I be taxed on the gain? Is there anything else that we need to
consider before proceeding? Thanks...

John

On 25 Feb 2004 08:40:06 -0800, (John) wrote:

I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments. The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them? Is the
interest tax deductible for them or me? I will eventually get a loan
to pay off theirs. If they sell the house to me below market value,
will I be taxed on the gain? Is there anything else that we need to
consider before proceeding? Thanks...

John

Your best course for immediate action is to consult a local real
estate attorney, not this newsgroup!



John Davies
http://home.comcast.net/~johnedavies/
'96 Lexus LX450
'00 Audi A4 1.8T quattro
Spokane WA USA

I would ask a CPA about the tax questions. You might try asking the IRS,
but you may get different answers each time you call. Call several times
and ask the same questions.

(Personally, if I saw that you had the mortgage payment statements and
canceled checks to your parents/mortgage company for the mortgage payment
amounts, that would be proof enough for me that you paid the interest. But
I am a nice guy, not an IRS auditor!)

Other than that, can your parents afford to make the mortgage payments
should you become un-employed? If they can't, then this may not be a good
idea. You could both wind up in a real jam.

Also your parents may have trouble getting a loan for a "2nd home" in which
they will not be living. May want to tell a real estate person what you
want to do and ask if there will be trouble getting financing.

And last, these are your parents, but even so, you would be wise to have
some sort of written agreement stating what you and they are agreeing to.
All sorts of nasty situations can happen in the future. Best to protect
your investment...


"John" wrote in message
I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments. The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them? Is the
interest tax deductible for them or me? I will eventually get a loan
to pay off theirs. If they sell the house to me below market value,
will I be taxed on the gain? Is there anything else that we need to
consider before proceeding? Thanks...

John

On 25 Feb 2004 08:40:06 -0800, someone wrote:

Will this be considered....
Is the interest tax deductible for them....
If they sell the house to me below market value.....,

I vote for: Yes, Yes, Sorta.

Its their house, legally.
It is their loan, legally.
Paying their debt for them is income to them not a deduction for you.
You might as well buy them vacation tix or pay off their Mastercard
instead, and let them send the checks to the bank, it will all be the
same as far as IRS goes.


Market value has nothing to do with whether it is a gain or loss, but
there may be a gift tax issue.

See your accountant. And they should see theirs. What is good for
them may not be what is good for you and vice versa (not to say that
they wouldn't do it anyway to help their kid).

-v.

In article , (John) wrote:
I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments.

Baaaad idea for all of you. If you default -- I know, I know, you wouldn't do
that to your parents, not on purpose anyway, but what if you lose your job, or
become disabled? -- then their credit rating gets damaged. Meanwhile, you
aren't building up your own credit history. Furthermore (and no offense is
intended -- try to take this as advice from an older brother or a favorite
uncle), it doesn't help your development as an independent adult, either.
You'll feel better, five or ten years from now, if you don't do this. Trust
me.

The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them?

Income of some sort, anyway. The debt will legally be theirs, and you're
paying it for them. That's taxable income for them.

Is the interest tax deductible for them or me?

Maybe *neither*.

Unquestionably *not* for you. IRS publications are *quite* specific about
that: you cannot legally claim a deduction for interest on a loan which you
are not obligated to repay.

Possibly not for them either. If they make the payments to the lender, and you
reimburse them, probably yes. If you make the payments to the lender,
then definitely not: if they didn't pay it, they can't deduct it.

I will eventually get a loan to pay off theirs.

When you're able to qualify for a loan, is the time to be buying a house. Not
before.

If they sell the house to me below market value, will I be taxed on the gain?

Hoo-boy. It gets complicated here. Better consult an attorney and/or an
accountant. But here's my take: Since the house would be your principal
residence and *not* theirs, any capital gain from the sale is _fully_taxable_
to them. If they sell the house to you below market value, they could be
buying some trouble with the IRS if they attempt to claim a capital *loss* on
the sale (or report a smaller gain than they would have achieved had they
sold it at market value). And the IRS may view the transfer at below market
value as taxable income to you, in the amount of the difference between fair
market value and the transfer price.

Is there anything else that we need to consider before proceeding?

Isn't that *enough*? :-) IMO, this is *not* a good idea at all. If you're
determined to do it anyway, talk to a lawyer and and accountant first.

Thanks...

Are you sure? :-) Probably not what you wanted to hear... Good luck.

(John) wrote in message . com...
I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments. The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them? Is the
interest tax deductible for them or me? I will eventually get a loan
to pay off theirs. If they sell the house to me below market value,
will I be taxed on the gain? Is there anything else that we need to
consider before proceeding? Thanks...

The interest will be tax dectuctable to THEM, not YOU.

When you get the loan, the end of year mortage reporting to
the IRS is done on the primary loan holders SSN. So it would
go to your parents in this case.

It could be considered rental income for them, which in that
case it wouldn't be tax deductable, property taxes would be
charged at the commercial(rental property) rate, and your
insurance would be higher. They would have to depriciate
the value of the house on their taxes also. When they sold
it they would have to pay capital gains taxes on the house
since they didn't reside there 2 or the last 5 years as required
for a residence per IRS laws.

THE BEST THING TO DO, is for you to get the house loan in
your name with them as the "co-signers" on the loan. The
creditors will like this as they can now hold a person with
better credit scores responsible for the loan, but your
name is on it also, which builds credit for you. Since you
would be the primary name, you can claim the tax credit and
homstead exemption.

hope that helps some.
John

(John) wrote in message . com...
I do not have the credit yet to get a home loan. My parents want to
buy a house for me but I would be making the mortgage payments. The
house will be under their name as the owners. They already own their
own home. Will this be considered rental income for them? Is the
interest tax deductible for them or me? I will eventually get a loan
to pay off theirs. If they sell the house to me below market value,
will I be taxed on the gain? Is there anything else that we need to
consider before proceeding? Thanks...

John

What are we talking about here? Anyone can get a loan, is it that you
can't get a preferred rate, or you don't make enough for the house you
want? What's your FICO score? Why can't you get the loan and let them
cosign? Who's going to pay the closing costs (or are you planning to
roll those in)?

This is kind of an extreme direction to take, why don't you go talk to
a mortgage broker to see what your options are. Unless you've
defaulted on a mortgage before and claimed bankruptcy it may not be as
bad as you think.

Market value has nothing to do with whether it is a gain or loss, but
there may be a gift tax issue.


There is no gift tax as there is no gift involved.
Pat

Money you pay your parents for the mortgage will be considered rental income
and they must pay tax on it.
Yes, the interest will be tax deductible for them.
When they sell the house to you, they will have to pay tax on the money from
the sale.
When you sell the house, the tax basis will be what they sold it to you for.
For instance, if they sell it to you for $100,000 and you sell it for $200,000,
you will be required to pay taxes on the difference.
Altogether, most people consider this a very bad idea.
Pat

In article , (Patscga) wrote:
Money you pay your parents for the mortgage will be considered rental income
and they must pay tax on it.
Yes, the interest will be tax deductible for them.

Not necessarily. If he makes the payments directly, it's not deductible for
either of them: not for the parents, because they didn't pay it, and not for
the child, because he's not legally responsible for the loan.

When they sell the house to you, they will have to pay tax on the money from
the sale.

Right here...

When you sell the house, the tax basis will be what they sold it to you for.
For instance, if they sell it to you for $100,000 and you sell it for $200,000,
you will be required to pay taxes on the difference.

...but wrong here.

In the US, up to $250K in capital gain on the sale of one's principal
residence is exempt from capital gain taxes ($500K for a married couple filing
jointly) provided that the taxpayer has used the home as his principal
residence for at least two years of the five years preceding the sale. So
unless the parents sell the home to him at *waaaay* below market value, he's
not likely to owe any capital gains taxes when he sells it.

Altogether, most people consider this a very bad idea.

No argument there.

Not necessarily. If he makes the payments directly, it's not deductible for
either of them:

I assumed he wasn't stupid enough to do that.


In the US, up to $250K in capital gain on the sale of one's principal
residence is exempt from capital gain taxes ($500K for a married couple
filing
jointly) provided that the taxpayer has used the home as his principal
residence for at least two years of

Everybody knows that.
Pat

In article , (Patscga) wrote:
Not necessarily. If he makes the payments directly, it's not deductible for
either of them:

I assumed he wasn't stupid enough to do that.

Bad assumption. He's apparently taking a stupid idea quite seriously. Why
would you assume anything?


In the US, up to $250K in capital gain on the sale of one's principal
residence is exempt from capital gain taxes ($500K for a married couple
filing
jointly) provided that the taxpayer has used the home as his principal
residence for at least two years of

Everybody knows that.

Doesn't appear from your post that you did.

On 26 Feb 2004 20:31:50 GMT, someone wrote:


There is no gift tax as there is no gift involved.
Pat
There will be if they transfer the house to him for less than market
value, which is what he asked about.

-v.