I was just wondering if you would please answer a question for me I am a little confused. I bought a house for my son Chris with my VA loan about 5 years ago. He makes

[Irishmatrix]

I was just wondering if you would please answer a question for me I am a little confused.  
I bought a house for my son Chris with my VA loan about 5 years ago.
He makes all of the house payments, taxes, and upkeep and maintenance of this house but the loan, title, and everything else is in our name (Susan and my name).
Since the purchase I have been claiming it as a rental, showing the taxes, insurance, mortgage, being paid by us and Chris paying us the rent that is equal to the house payment.
I am just concerned if I am doing the right thing.  Should I list this as a rental or a second home and list only the interest and taxes?  
As soon as he is capable I am going to sign the house over to him when he can qualify for the loan on his own.

[Anita01]

Is the amount he is paying you a fair market rental rate if you were renting the house to someone else?

[Irishmatrix]

NO like I said he is actually making the house payment, taxes, and upkeep and maintenance.  The problem everything including the the loan and deed and insurance is all in my wife and my name.

[Irishmatrix]

Actually that was our agreement that I would get the loan and he would pay for everything and I could take all of the tax right offs. But should I list it as a rental or a second home?

[Anita01 · Accepted solution]

Without a market rate of rent, you should be claiming it as a second home.  Basically, property that is not rented to make a profit means your expenses are limited to your rental income.  If you claimed this as a second home you could deduct mortgage interest and property tax and any PMI mortgage insurance you pay.  Since the resident is your son, that would be considered personal use of a second home.  You would have to amend your prior year returns to make this change, though.  You would lose depreciation and any other repair or maintenance expenses you may have deducted.  On the other hand, your income would decline by the amount of rent you reported.

When you sell a second home, the profit is taxable and the loss, is any,  is not deductible.

Following are instructions on amending your returns.

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