My husband and I recently purchased a second home and will continue to maintain our primary residence a few hours away. We only put 10% down on the house and, accordingly, our mortgage stipulates the home cannot be a rental/investment property. Under the sales contract, we have agreed to let the sellers do a leaseback while they close on their new home (paying us $100/day) and our mortgage company has agreed, with the restriction that it can only be for up to 60 days. I have two questions: 1) Are we required to pay federal income tax on the money we collect during the leaseback period (up to $6k)? Note that the monthly income will exceed our mortgage payment by $900/mo, so it technically is income vs. just covering our mortgage payment. 2) If we are required to pay taxes on that money, are we at least allowed to write off any home improvements while the sellers are there during the leaseback period? For example, the sellers have agreed to let us break ground on a pool while they are staying there, as well as installing a new garage door and painting the exterior of the home.
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