@OK_I wrote:
Thank you for response. Let me rephrase. If I delegate all my rights on property (beside the right to sell) to other person and that person decides to use this property for rental, do I, as an owner, still need to report his income as my income?
Thanks.
I don't know how that would be treated under the law.
From one point of view, the ability to sell a property is the quintessential condition of ownership. For example, if my father gifts me his house but retains right of survivorship, that means I can't sell the home until after he dies. From the IRS point of view, I don't actually own the home, and when he dies, I inherit a stepped up basis. (If he gifted me the home in fee simple, then I am the owner because I could sell the home and force him to move, so that is treated as a gift with a gifted basis instead of stepped up basis.)
Now, that may seem to have little to do with rental property, but it seems to me that if you are the owner insofar as you are the only person who can sell the property, and you alone benefit from the sale of the property, then you haven't delegated anything that would be meaningful in a tax sense. If and when you sell, you would certainly owe capital gains tax on the gain, and you would certainly owe depreciation recapture tax for depreciation that you took or could have taken while the property was a rental, even if you didn't report the income and actually take the depreciation.
Most of the time, a well managed rental shows little profit on paper anyway, and I don't see what you are trying to do by giving away the cash flow without selling the property now. If you don't want to be burdened by it, just sell it. I understand that many people are frightened or intimidated by income taxes but I can't understand giving up thousands of dollars to avoid a few forms, even if you have to pay an expert a portion of your profits to help you.
I feel there is something else underlying the situation that you haven't explained. I suspect that it is not possible to avoid the tax responsibility by "delegating" your rights in the property except for the right to sell, because the right to sell is the only right that matters (it's the right of ownership that all other rights depend on.) But I suggest you get professional advice.
