Multigenerational house mortgage options

Perspective said:
Perspective said:
AW said:
Fraauud, what is this fraaauud?
The parents can live there for free, and give the kids allowance money monthly
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Sure thing, and every dollar of that allowance is ordinary income and fully taxable without any associated deductions.
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It gets better too, because not charging someone rent is a "gift" and subject to gift tax consequences as well if it exceeds ~$14K per person annually.
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Owing gift tax only comes into play when you go over your lifetime allotment. You can ask your CPA. I already asked mine when I had to look into my mom's assets. She SHOULD have been giving away her assets long ago but now every penny she gives away is subject to that 5 year lookback.
 
qwerty said:
The recipient of a gift is never subject to income taxes on the gift as it is not considered income
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Right, but the parents owe nothing either if they stay under the lifetime maximum in gifts, they just have to report anything over $14K per gift for each of them.

$56000 per year works out to over $4600 per month that doesn't get counted as income and even the IRS isn't going to say that is tax fraud.

 
irvinehomeowner said:
Wait... so I can ask my parents for $4600/month and that's tax free?

Hope my kids don't find out about that.
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Wait, you don't get that currently from your parents?  No wonder you had to coin the FCB term. 
 
Ready2Downsize said:
qwerty said:
The recipient of a gift is never subject to income taxes on the gift as it is not considered income
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Right, but the parents owe nothing either if they stay under the lifetime maximum in gifts, they just have to report anything over $14K per gift for each of them.

$56000 per year works out to over $4600 per month that doesn't get counted as income and even the IRS isn't going to say that is tax fraud.
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Well there are two issues here. One like you said, the parents can gift the 56k to the two kids and no one owes taxes. But if the parents are living at the casita rent free and also gifting the 56k then the kids are now gifting the rent to the parents, still no taxes.
 
qwerty said:
Ready2Downsize said:
qwerty said:
The recipient of a gift is never subject to income taxes on the gift as it is not considered income
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Right, but the parents owe nothing either if they stay under the lifetime maximum in gifts, they just have to report anything over $14K per gift for each of them.

$56000 per year works out to over $4600 per month that doesn't get counted as income and even the IRS isn't going to say that is tax fraud.
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Well there are two issues here. One like you said, the parents can gift the 56k to the two kids and no one owes taxes. But if the parents are living at the casita rent free and also gifting the 56k then the kids are now gifting the rent to the parents, still no taxes.
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I guess maybe they are supposed to charge fair market rent to their parents? How exactly does the IRS determine if someone has to pay rent? What about all the people who had to move back home when the economy was horrible? They have to pay rent? It wasn't only kids who moved back home. Some parents moved in with their kids. What about kids who move back home because they owe so much in student loans they have to find a way to pay them off and so their parents let them move back. What about people who aren't married and only one is on the deed? Other one is supposed to pay rent?

If they had any health issues and letting them stay at their house kept them out of the nursing home medical would be thrilled. In fact if it were the other way around and the kids lived with their parents (no rent) and could prove they took care of them and it prevented them going to a home for two years the entire house could be signed over to that child caretaker with no 5 year lookback. That is how much the government wants to keep the elderly out of nursing homes paid for by med-i-cal. So how do those taxes work? The caretaker child has to pay rent?

Well my kids can all come back anytime and I ain't charging rent and I don't think they are going to put on their tax return they got some benefit by not paying rent. Geesh..... I pay enough other people's rent already thanks to Uncle Sam.

 
@ready2downsize - essentially if you have property such as a second home that has commercial value and you let someone stay there for free the IRS says you are giving them the fair value of the rent (established using comps). A personal residence doesn't have that commercial value since its your primary residence. The casita would be an interesting scenario, I would argue that since its part of the primary residence there is no separate commercial value, especially if u have just purchased it and have not rented it out. Now if you rented the casita from the time of purchase and you kicked the renters out so the parents can move in that changes the fact pattern and then the IRS could argue that the casita has commercial value.
 
C'mon now. You guys are over complicating things.
Think of the fcb's. 3 generations in one house, rent, fmv, tax, nope.
 
Ready2Downsize said:
Well my kids can all come back anytime and I ain't charging rent and I don't think they are going to put on their tax return they got some benefit by not paying rent. Geesh..... I pay enough other people's rent already thanks to Uncle Sam.
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Remember, the recipient doesn't have taxable income :)
 
AW said:
C'mon now. You guys are over complicating things.
Think of the fcb's. 3 generations in one house, rent, fmv, tax, nope.
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Please don't bandy the term "fcb" around so nonchalantly, Swordfish might get offended.
 
I say you do the purchase transaction with the parent as occupant borrowers, use the down payment- then it's not gift- deed vested as 25% interest for each person, you, wife, mother, father, then in 1 yr, refinance just in your names and keep parents on title.
 
kpchoe said:
I say you do the purchase transaction with the parent as occupant borrowers, use the down payment- then it's not gift- deed vested as 25% interest for each person, you, wife, mother, father, then in 1 yr, refinance just in your names and keep parents on title.
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Then how do you dissolve this mess when the relationship sours because living with your parents ain't grand?
 
Perspective said:
kpchoe said:
I say you do the purchase transaction with the parent as occupant borrowers, use the down payment- then it's not gift- deed vested as 25% interest for each person, you, wife, mother, father, then in 1 yr, refinance just in your names and keep parents on title.
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Then how do you dissolve this mess when the relationship sours because living with your parents ain't grand?
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It appears that the parents are putting most of the down payment so they can make arrangements based on how many years the kids have paid the mortgage and loan balance.
However- if they are Asian- there is no going sour. We just have to deal with it. Lol!
 
irvinehomeowner said:
AW said:
C'mon now. You guys are over complicating things.
Think of the fcb's. 3 generations in one house, rent, fmv, tax, nope.
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Please don't bandy the term "fcb" around so nonchalantly, Swordfish might get offended.
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Then there comes the realization that this is 'murica and an internet forum.
 
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