Can my parents gift my a down payment for an investment property that they then rent from me at full market value?

[ddejarnette1]

Their old was was in poor condition, has been sold, but is not enough to buy a decent new house. They cannot get approved for a mortgage on their own.

[Critter-3]

What you have are 2 separate situations.

>They can gift you any amount they want at any time for any reason.  If they give you more then $15K per person per tax year then they will need to file a gift tax return.  What you use that money for is immaterial.

> If you buy a rental then you can rent it to anyone you wish and report it on the Sch E as long as you rent for a fair market value.   If you rent to family at less than FMV then it is considered a not for profit rental which has different rules. 

[Anonymous]

realize that if sold at a gain before they die, you'll pay tax on deprecition recapture and won't be eligible for the home sale exclusion.  since you own it, even if sold after their death there will be no step-up in basis. I don't know if this will work because it depends on their finances but here's a suggestion.  they buy the house in their name (you are not on the title)  if necessary you lend them any money needed to close the deal. you co-sign on the mortgage, if need,  but your parents pay it. in addition, they would need to pay you interest on the money you lent them to close the deal.    this assumes there finances are good enough to pay the mortgage, upkeep on the property - such as taxes, maintenance utilities, insurance, etc.  and pay you at least a reasonable amount of interest on your loan (if they can afford it they could also pay you, principal).  if this is practical the advantages are if they live in it at least 2 years then sell they would be entitled to exclude gain up to $500,000.  if they live in it til they die and you are the sole heir you get a step-up in basis and if sold shortly after death of the last of them, you would have no taxable gain - maybe even a loss due to selling expenses. 

[Critter-3]

Before you do anything I highly recommend you seek local professional assistance to see which situation would be the best for all involved.  

[TomD8]

If you rent to a family member below FMV it is considered personal use of the home, and the property is no longer considered rental property for tax purposes.   In that situation, the owner would lose all deductible expenses except mortgage interest and real estate taxes.  Also, the owner would report the "rental" income as "Other Income" on Line 8 of Schedule 1, and would not use Schedule E.