Property purchased for parents and paying mortgage

[Raj90]

Hi,

My wife and I own a home currently by ourselves, just a regular single family home. We recently purchased a condo for my parents to live in full time. They reside in the unit everyday. Everything is in my name (bills, title, property, taxes etc.). I also pay the mortgage, bills and associated HOA fees every month. 

How do I do this on my taxes? Do I report this as a rental property and show 0 income from it? Is there some tax deduction I can make from this?

I currently file jointly with my wife. 

[AmyC]

I wonder if you are supporting your parents and can claim them on your tax return? There is no rental house deduction when rented for less than fair market value. You are not renting it, you are really using it as a second home to support your parents.  This would allow you to claim the interest and property taxes on your sch A, itemized deductions. See Publication 936 (2021), Home Mortgage Interest Deduction - IRS

[Raj90]

Thanks Amy! I think interest and taxes are both below the 25,100 limit for both properties so I think it makes more sense to get the standard deduction in that case. 

We do claim him as a dependent and he has no income coming in other than social security. 

[Opus 17]

Leaving the rental issue aside, you have a second home that your parents live in.  You can deduct mortgage interest on your main home and one second home, up to a total mortgage balance of $750,000.  This can be your "second home" for this deduction.

You can deduct all the property taxes you pay, however subject to the $10,000 SALT cap on all state and local income and property taxes.

HOA fees are never deductible.  If the HOA charges assessments for property improvements, that can be added to your cost basis and may reduce your capital gains when you sell.

You can, in theory, charge your parents rent and report your expenses as a rental on schedule E.  However, unless you charge your parents full market rent (what the condo would rent for to stranger), then your deductions are limited, and it's far more trouble than it's worth.  If your parents don't pay rent, don't report it as an "in-kind" rental of any kind, it's just family helping each other out.   (And if, by chance you decide to charge them "rent" where they pay you let's say $2000 per month, and you turn around and just happen to "gift" them $2000 per month out of generosity, and take rental expense deductions against rent, run don't walk to a tax attorney.  The IRS would correctly view it as a sham tax avoidance scheme.)