Parents’ Rental Property

Today TaxMama® hears from KH in the TaxQuips Forum, with this question.  “My parents are willing to give me a rental property they own. The house is in their name and they currently claim it on their taxes. There is a mortgage on the property as well. We are currently trying to refi the house to get the interest rate down. Is there a way to do the refi, keep it in their name, but then allow me to claim it during tax time?

Dear KH,

How long ago did your parents buy the property?  A property bought 20 years ago has appreciated in value substantially. By signing it over to you, you keep their tax cost (basis) in the property.

You can buy the property from them at fair market value using the new mortgage. Once you have owned it for more than two years, you get to use the new purchase price as the basis.

OR…you can lease the property from them, long-term. The lease will need to specify that you are permitted to refinance the property. You pay them an annual lease fee and keep all the rents about that. Note: That annual lease fee could be the amount needed to cover the mortgage.

Talk to a tax attorney who is familiar with real estate and contracts.

We’ll probably have some other tax gurus jump in with ideas, too.  Have fun.

And remember, you can find answers to all kinds of questions about real estate, basis, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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