There are several ways to approach purchasing a second home for a child to temporarily live in. This is very common for parents with children who are going to college or transitioning into a new stage of life.
With simple planning, your children can gain immediate access to their home and you gain some new tax deductions. You can rent the home that you purchase to your children and treat the property as a rental for tax purposes. Courts have ruled that landlords can reduce their fair-market rent by 20% when renting to relatives, the lower rent reflects the savings in maintenance and management costs.
If your children cannot afford rent or you do not wish to burden them with a rent payment, you can claim fair market value rent and claim the amount they don’t pay as a gift from you to them.
This year the gift exclusion not subject to gift tax is $14,000 per taxpayer. By renting the home to your children, you can take all of the common tax deductions and tax breaks associated with a rental property. You will still need to consider your income level and classification as an investor, but the tax benefits may be significant. ( https://www.camusocpa.com/real-estate/real-estate-professional-status-a-cpas-perspective/#/)
At Camuso CPA we encourage families to plan their finances and taxes as a whole, considering the situations of all family members. We can help you with the transfer of property from parent to child with our Charlotte CPA services.
Camuso CPA PLLC offers a series of services to develop and tailor a first-rate tax plan for your investment portfolio. Reach out to our team regarding any questions about tax planning or retirement planning.
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