Who should claim rental income in tax return if my wife owns a house and her parent rented it out to a family?

[sombrero8811]

My wife owns the house were her parents live. The house was purchases 6 years ago using her name since their credit and income would not allow them to do so on their own. Fast forward to 2018 and they decide to rent out the house, with my wife’s consent. The payment check was made out to my wife and deposited in a checking acc she shares with them. Do I need to include this as income in our taxes or can I ignore it? They claim that since they are using that money it’s their problem (I disagree). Is there a safe way to shift the tax liability to them or am ai stuck with this?

[sombrero8811]

Thank you Michael. To clarify, they do pay the mortgage and bills on the property.

Follow up question, a CPA they have consulted advised them to have my wife create a “lease assignment” and that way shift the tax burden on them. And on our end to record the transaction as follows:

Dr. Cash (entering our side), Cr. Accounts Payable (to the parents)". Then Dr. Accounts Payable, Cr. Cash. This so it does not affect the P&L and avoid filling a Schedule E.

Does it make any sense? Even if it does, can this be done after the fact the rental is already over, paid and vacated already?

Thank you.

[MichaelMc]

I wish I could provide more help, but the question is beyond the scope of this TurboTax community. I suggest that you consult a local attorney as to whether such a lease assignment would accomplish the objectives and, if so, engage the attorney to draft the document.

[MichaelMc]

Since the house is titled to your wife and she actually receives the rent payments, the responsibility to report the rental income and expenses is hers. The fact that she deposits the rent into a bank account which is shared with her parents has no relevance.

Your wife is entitled to claim mortgage interest and real estate taxes that she was legally obligated to pay and which she actually paid. I hope that the arrangement with her parents at least leaves her enough money in the bank account to make those payments out of the rent receipts.

[sombrero8811]

Thank you Michael. To clarify, they do pay the mortgage and bills on the property.

Follow up question, a CPA they have consulted advised them to have my wife create a “lease assignment” and that way shift the tax burden on them. And on our end to record the transaction as follows:

Dr. Cash (entering our side), Cr. Accounts Payable (to the parents)". Then Dr. Accounts Payable, Cr. Cash. This so it does not affect the P&L and avoid filling a Schedule E.

Does it make any sense? Even if it does, can this be done after the fact the rental is already over, paid and vacated already?

Thank you.