Is my son liable for taxable gain on the house he bought for me or it can he claim it as his primary home for taxes, if he owned no other house

[tagteam · Accepted solution]

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@rottenmomma wrote:

Do you think that the IRS might be willing to do a compassionate compromise?

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You can have him ask since there is always the possibility of a compromise (they're never compassionate, though).

[NCperson]

@rottenmomma - while this is getting beyond a tax issue, why are even worrying about this.? If you son is educated and married and you are in declining health, why isn’t this your son’s problem as he made these decisions....

[ScruffyCurmudgeon]

@NCperson - On point!
The tax situation belongs to the owner of the property, not the tenant, or the parent. Again, what seems to be forgotten here is that as investment property the owner should, indeed must, report depreciation expense that would each year reduce the then-current tax liability (although it moderately reduces the cost basis). Also, were other operating expenses reported as deductible rental property expenses?

[rottenmomma]

Since my son considered only the basement to be income property -  my son took off prorated utilities (since the rent included utilities) and I think a proportional part of the HOA, and RE tax. Is there anything else he was entitled to take? He probably could have taken the deductions for the whole house since everyone says it is an income property and have had a loss for several years. How far back can he file an amended return to reclaim some of the tax he paid? If he gets back some tax that would help the current situation.

[NCperson]

You are allowed to amend for three years after filing so he can amend 2016, 2017, 2018..... 2015 would be dependent on the exact date of filing since April 15, 2016 is now more than 3 years ago

Suggest a CPA - this is gettting messy

[ScruffyCurmudgeon]

First point - from the moment that the owner ceased to be a resident of the house and either provided housing even at no cost to someone else (his mother) or rented it or a portion, the house was from that moment totally rental property and depreciation was "Allowable" and therefore has to be applied in reducing the cost basis of the house - even if he failed to report as a deductible expense the [Allowed}  depreciation!

Therefore, this would be an advantage in filing amendments because he loses on the cost basis whether or not he actually reports it.  So by amending and reporting he reduces his previous tax liability and can claim refunds for those years.

Don't forget the depreciation!    The reduction in basis is on the larger amount of either allowed depreciation (reported and taken as a deduction) or allowable depreciation.   q.v., https://taxmap.irs.gov/taxmap/pubs/p946-005.htm

Second from this is the issue of the mother's use.  If no rent was charged, then her occupancy must be construed as an implicit GIFT!  Depending on the value of the annual implicit rent (even when not billed), there may be Gift Tax (Form 709) implications [if annual rent inclusive of all utilities used by her residency] exceeded $15,000.