Investors & landlords

@Opus 17 

Hi Opus,

> Generally speaking, the rental income belongs to the owner. Period. If you are the owner, you get the income.

Thank you. This is what I was looking for. After several hours of searching and reading, some of the posts on this forum seemed to hint or suggest otherwise, which seemed a little odd. Some of them were slightly different situations, so I wanted to give my exact situation to get a more definitive answer (instead of trying to post in those questions).

> Be aware that if your father gifts you the house, he also gifts you his cost basis. This is significantly worse for you than if you were to inherit it, especially with California taxes on capital gains.

All good points. As mentioned in the original post, we are in fact already aware of this. My father’s cost basis received a double step up (for both his portion and my mother’s when she recently passed), so the difference between the cost basis on the transfer versus inheritance will be pretty small.

> Also, when you place the property in service as a rental, the basis for rental depreciation is the current fair market value or your cost basis, whichever is lower. So the gifting strategy may seriously affect your rental income.

Because the cost basis will be high, we’re fine with this.

> Then, you will be getting in bed with a renter. Are you prepared to deal with the laws as regards to tenants' rights, discrimination, and so on? What if the renter doesn't pay? What if they trash the place? Do you know your rights and are you prepared to add full time landlord and maintenance man to your other responsibilities?

Without going into detail, I was a live-in landlord ~15 years ago in another house that was jointly owned. As you’re mentioning, it's nothing to do half-heartedly or to take lightly.

I wasn’t involved much with doing the taxes myself back then (we used a CPA who did almost everything), so one thing I am having to get up to speed on are all the relevant tax laws/deductions associated with us renting these rooms out.

> You need to see an Elder law specialist for your estate and tax planning needs. Tell them what you want to do (keep the house, avoid the Medi-cal lookback, and generate a little income) and let them tell you how best to do that.

Older post/question you referenced: 
https://ttlc.intuit.com/community/home-loans/discussion/re-if-someone-refina[product key removed]ry-...
“Level 15 Opus 17 Level 15 ‎September 8, 2020 9:43 AM
‘xmasbaby0 wrote:
I will add that you should also consult an elder care attorney about the wisdom of gifting the house to you. If your father --who you say is in poor health-- ends up needing Medicaid and going into a nursing home at some point, Medicaid has a five year clawback on "gifts" given by your father. It would be a good idea to do some serious estate planning.’

This is critical. See an Elder Law specialist for your estate planning needs. When a parent "gifts" a house to a child, there can be several very bad outcomes, regardless of whether you can make the gift without screwing up your mortgage. (You could be required to pay up to half or more of the value of the gift back to your father to pay for his medical care, which might force you to sell the house or refinance.)

Besides losing the house to Medicaid, the child can be hit with capital gains tax when selling the house, that can be avoided if proper steps are taken in advance. “

This is all of course good advice and are important cautions for anyone reading.

Just to clarify, we were already aware of all of this, and we already had been in, and are in contact with an estate planning attorney about these things. According to her, it seems we’re good on the long term Medi-cal planning, the house transfer, etc. (although we are still ironing out a few things). I mentioned “This is not something we are doing without proper legal counsel, or are doing on an uniformed whim” in my post to try to preempt these concerns, but in the future perhaps I’ll explicitly state we are in contact with an estate attorney about everything when relevant.

My background is in computer science and engineering, not finance or law. I don’t think most people realize how complicated the getting close to the end of life situation can be until they or a family member experiences it - and then it’s almost as if everyone is taking a crash course.

There is a small possibility we may put the house in an irrevocable trust instead of going ahead with this transfer. (We may ask a related tax question or two about this, if our attorney doesn’t know. She’s expensive, and she doesn’t seem to know as much about some of the specific tax implications of doing certain things, as many of the posters here I’ve discovered.) [edit: such as being a landlord]

So to summarize, we have legal counsel (estate attorney), and we may just need help here and there on some specific questions that our attorney doesn’t know mostly related to taxes. We are not looking for any guidance about Medi-Cal estate recovery, eligibility, or similar things, etc. We also of course understand any advice given is in no way actual tax (or legal) advice, and should be properly vetted.

Also, thanks for your help and input, in this, and also in past questions. I know you don’t have to take the time, so I just wanted to say that it’s appreciated.

[Edited 11.11.2020 | 9:08pm, mostly removed some personal information]