Can a family member live in our second home and pay expenses?

[taxquestion18]

If my mother lives in our second home as her primary residence, can she pay the home's expenses (utilities, association fee, and contribute toward the mortgage payment), without those payments being considered "rental income" for me?

[Hal_Al]

Yes. You have no rental activity to report. 

You may continue to deduct real estate taxes and mortgage interest, on schedule A (itemized deductions), for your 2nd home.

[Carl]

In other words, it doesn't change the fact that it's still a 2nd home. But do understand that the only one who can deduct the mortgage interest and property taxes, is the one who is legally obligated to pay them. Who actually pays them, doesn't matter. Only the one legally obligated to pay those things, can claim them.

[bobweissman]

I read Publication 530 differently. What I read is that you must BOTH be obligated to pay them AND have actually paid them.

"You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year."

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p530/ar02.html#en_US_2016_publink100011838">https://www.irs.gov/pub...>

[taxquestion18]

Thank you for the comments.  Would she need to make direct payments to the mortgage lender, rather than write a check out to me, so it cannot be construed as a rental payment?  Or would a simple written document, stating the nature of this arrangement suffice?

[Carl]

Either or. Assuming she is in fact on the mortgage and the deed, and further assuming she is the one claiming the mortgage interest and property taxes, I would just have her pay them directly. But that's me.

[Hal_Al]

You should have the family member pay you, so that you are the one making the tax  & mortgage payments.

[nathancg]

My brother and I co own a condo - we pay the mortgage, HOA and Taxes from a joint account (my brother and I) - he gives us money monthly, well below market rate and pretty much just covers these costs. Is this Misc income and reportable? Or because it is personal use and "not for profit" is this not taxable?

[Hal_Al]

That it is not income and does not need to be reported.

[Carl]

@nathancg is an add-on to this thread, and their situation has nothing to do with the original poster's situation. You need to post your own question and start your own thread. Otherwise, it can (and usually does) read to the reader making incorrect assumptions.

[nathancg]

understood thought it was similar will post separately.

[Carl]

My brother and I co own a condo - we pay the mortgage, HOA and Taxes from a joint account (my brother and I)

That's fine. HOA dues are not a deductible expense on any tax return, since the property is a "2nd home" and is not used in a business capacity of any type. If both are listed on the deed, then the one who actually pays the property taxes can claim those payments on their tax return. If paid from a joint account then there's no problem with how you split it between the two owners. You can split any way you like, or one of you can take the entire deduction for property taxes.

- he gives us money monthly, well below market rate and pretty much just covers these costs.

Who is "he"? Your brother that is also an owner of the property? Or a third party?

Is this Misc income and reportable? Or because it is personal use and "not for profit" is this not taxable?

If 'he" is a third party that has no ownership in the property, then it's reportable income any way you look at it. Understand that the part of the mortgage payment that is deductible is the mortgage interest only. The principle part of the payment is reportable income to the owner(s)/recipient(s) any way you look at it.

Just because the third party tenant is only "making the payments" does not mean you don't have taxable profit.

The only person(s) that can claim the mortgage interest and property taxes is/are the one(s) who are legally obligated to pay it; regardless of who "actually" pays it. The fact the third party tenant is "only making the payments" does not mean the property is not being rented. That alone is not enough to declare you're not using the property to produce income; which is passive income that would be reported as such on SCH E.

When renting below FMRV and reporting the income for what it really is (rental income) on SCH E, there's pros and cons to that.

The "pro" is that the taxable part of the mortgage payment (the principle) is generally offset by the depreciation you are required by law to take on the property.  It is rare for rental property to actually show a taxable profit "on paper", especially if the property has a mortgage on it.

The "con" is that when renting below FMRV, suspended losses are not allowed. So any deductible rental expenses that exceed your taxable rental income can not be carried over and you just lose them permanently and forever. This has the potential to really hurt tax-wise in the year you sell the property and are required to recapture all prior year's depreciation and pay taxes on it.

If you report it as misc income then it's 100% taxable. The mortgage interest is then claimed on SCH A (instead of SCH E) and is subject to the SALT (State & Local Taxes) limits as well as the limit on allowed mortgage deductions on the SCH A which can not exceed a total of $1M. So if the total outstanding balance on all mortgages on the SCH A exceed $1M, then the interest paid on the amount over $1M is not deductible.

THere is no mortgage balance limit for rental property reported on SCH E.

[Jonknee]

"If 'he" is a third party that has no ownership in the property, then it's reportable income any way you look at it."

You just contradicted every answer up there. So according to your answer the owner of the home that the mother (from the original post) is living in and helping pay mortgage/utility etc.. will have to report that as income because the mother is not a co-owner?

[Anonymous_]

@Jonknee This is confusing because (a) the original post in this thread is at least two years old (and most likely much older having been transferred from another TurboTax board) and, (b) the post immediately above yours was an answer to a post by a user other than the user who started this thread. 

In short, the answer to which you are referring does not address the first post in this thread.

[step07726]

Best to do in that case is have a joint checking account. Even if you never deposited a penny into the account it is still part your mone y legally. So you can cliam the deductions legally.