We were given some duplexes that had to be moved to make way for some commercial development. We had the lots to put them on so we took them. We asked our young and newly married sons to help with the moving and repairs and told them we would "sell" them each a building. We remodeled them into houses and they now each live in one. For the past few years we have been charging them rent at a price below what we have in them. They were neither able to get a loan at that time, and could not now. We rolled some debt into the mortgage when we financed them, so we felt responsible for some of the cost. My question is this. The loans are due to be paid off in 12 years. At the end of that 12 years it doesn't seem right to just sign them over to them. Wouldn't they have to pay some kind of income or gift tax? Should we draw up a contract for deed now using the balance of the loan, the total of their payments for the next 12 years, and use that to convey ownership when the mortgages are paid off. We have been claiming the insurance, taxes, etc. as a rental property. Everything is still in our names. What I really need is some advice on how to handle this and be legal. Thanks in advance for your help.

Change the current rental to a contract for deed, their payments will be paying for the home.

Would we still be able to claim mortgage interest, real estate taxes, etc. on income tax until the Contract for Deed matures.

Well the same as you are now as a rental property, can't do it like a homeowner since this is now investment property.

But you are still the deeded owner.

Since these were never your residences, you should have been claiming the interest and taxes as expenses for a business.

Since, with a contract for deed you remain the owners until the contract is fulfilled you can continue to claim them as expenses.

If you are letting the property go to them for less than market value there may be some gift tax consequences to you. But you can spread them out over years to take advantage of the yearly exclusions.