Purchased house for son

[cm571]

We purchased home 9/2022 for cash

We are rehabbing with upgrades to insulation which should get us a tax rebate

There is a solar array which we bought out of the lease the seller had to own it out right ourselves.

When done with rehab our son will be living there paying us monthly to own.

How and what do we claim/file 2022?

[JBedford]

Hi @cm571 , thanks for the question, and congrats on the home purchase! 

Keep in mind that the purchase of a home is generally not a "taxable event", so that purchase and most of the upgrades are not going to affect this year. However, both the purchase price of the home, as well as the cost of any improvements, contribute to your "basis" in the home. This may be important if you ever sell the home, as that basis will be used to determine the amount of any gain or loss you have on the sale.

The one exception to this is the cost of the energy-efficient upgrades which, as you said, may qualify you for a credit on this year's return. However, you might want to review this article, since the fact that this is not your primary home could be a factor if you installed fuel-cell equipment. Energy Tax Credit: Which Home Improvements Qualify? You may also be able to deduct a portion of the property taxes on the home.

Hope this helps! 

[Anonymous]

@cm571 thank you for participating in our event.

It is not clear from the description, if you will start renting to your son in 2022.

I will proceed with the assumption, that you will start renting in 2023.

For 2022, this house will qualify as a second home on your tax return.

Following are the deductions and credits that you can take on second home for 2022:

• Mortgage interest not applicable here as you paid in cash
• Real estate taxes
• Energy tax credit for things like insulation upgrade if they qualify

Suggestions for when you start renting to your son who will be paying you monthly:

• Charge him the fair rental value
• Have him sign a lease agreement at the current interest rate

If you follow these guidelines, you will be able to claim the income you receive and take deductions for expenses incurred for real estate taxes, depreciation and maintenance. Also, keep a record of the upgrades you are doing to the house, you will be able to increase the cost of the house (for depreciation) with the amount paid for those upgrades as long as you did not use those to get a credit on the tax return. 

A few helpful links with more information:

Energy Tax Credit: Which Home Improvements Qualify? 

Buying a Second Home—Tax Tips for Homeowners 

Renting house to a relative