I have a question that I hope you can help me with or at least point me in the right direction to get the required information.

My father is 86 and currently owns a single family home ( where he resides) and owns a 4 family apartment building ( No mortgage) . He no longer wants to deal with the apartment building. He wants to sell me the apartment house for appraised value. I would pay him monthly payments for 15 years until the house is paid off ( I guess you could call this a reverse mortgage type situation).

1. He would claim the monthly payments as income
2. I would claim the payments to him as costs to run the apartment building, along with taxes, repairs, etc.


Is this legal/allowable?


Of course we would get a lawyer to draw up an agreement and in the case of death, the balance of house value would be added to his current trust.

Thanks,

#1 yes.
#2 no. this is not a cost to run the building and will not be allowed as a cost to run the building.

Best to consult with a tax attorney on the second item to be sure though.

Thanks... so what/how do you suggest I handle the payments? For example, say I make $24000 year in rent receipts and pay him $22000 in payments, my profit will be $2000. Surely I will claim the $2000 as my income, but I could not possibly claim all $24K as income...

He would write and do a mortgage that he holds on the apartment building, so that you owe him for it.
The 15 years is fine. The home has nothing to do with the loan and is not part of the issue. It being or not being paid off is not part of the deal. You paying value for the apartment building till it is paid off

Not to be rude, but the odds are he will not live for 15 years, so at his death the estate becomes the owner of the loan.

He will have to claim any profit on the sale of the apartment on his taxes and any interest on the payments will be income for the year.

On your business expense you will show the interest you pay on the debt as part of your expense, can show depreciation of the value and other as part of your expense. You should have a CPA or tax attorney go over those issues with you.

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Originally Posted by msousa

Thanks... so what/how do you suggest I handle the payments? For example, say I make $24000 year in rent receipts and pay him $22000 in payments, my profit will be $2000. Surely I will claim the $2000 as my income, but I could not possibly claim all $24K as income...

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Hello m:

You're going to need a CPA to set up your books and do your taxes. Clearly, you'll have maintenance, lost rent, depreciation, office expenses, legal expenses and more. You'll be able to deduct all of that from the gross income, but it looks like there will be some profit. Most new building owners have a ton of interest due every month. You won't. That's great, but you might have some taxes due...

However, depending on HOW you structure ownership of the building, and what net effect your own personal taxes might have, you may owe NOTHING at all.

excon

Quote:

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Originally Posted by msousa

Thanks... so what/how do you suggest I handle the payments? For example, say I make $24000 year in rent receipts and pay him $22000 in payments, my profit will be $2000. Surely I will claim the $2000 as my income, but I could not possibly claim all $24K as income...

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It would be nice if running rental property were
(gross income) less (mortgage payments) = net income.

But it doesn't work that way. Chances are that you will be spending at least the $2,000 on maintenance, taxes, etc.

As others have told you, it is absolutely necessary that you have an accountant show you how to set this up. Your father will have to establish what his "basis" is for the apartment house. In other words, what he has put into it. As soon as accumulated payments you make to him total that basis, anything more is taxable as capital gain.