[Gabster]

Hi My daughter declared bankrupt last year and this year we bought a second house for them because of their bankruptcy they could not get a mortgage. We will be filling our tax papers. We don't charge them rent but they do pay the mortgage will I have to declare this has an income even we don't charge them rent.

Please advise thank you Gabster

[AtlantaTaxExpert]

Gabster:

Righit now, You own the house, and because they are paying the mortgage, they ARE paying rent (that is equal to the mortgage payment).

It would be best for you and your daughter if you had them sign a lease and you listed the house as residential rental property on Schedule E. As long as the mortgage payment represents what is close to the market value for rental real estate in your area, you will not have any problems with the IRS about giving preferential treatment to a related-party.

However, if you continue to NOT treat your daughter like you would a perfect stranger, then the IRS may invoke related-party rules. These rules can make your life REALLY COMPLICATED when it comes time to do what you ultimately want to do, which is, of course, to sell them the house when they can qualify for a mortgage.

That is why I recommend you have them sign a lease, because that is what you would do if the renters were strangers.

[IntlTax]

This sounds like your daughter may have equitable ownership of the house. In this case, she would be able to deduct the interest on the mortgage and you would have no rental income.

[Fr_Chuck]

Since they are paying you the amount of money equal to the mortgage payment, it is your mortgage not thiers.

You need to stop thinking of it like you are and think of it as a rental

[IntlTax]

See the Uslu case (TC Memo 1997-551). Married taxpayers who were the beneficial owners of a home were entitled to the qualified residence interest deduction, even though they did not hold legal title to the home and were not directly liable on its mortgage.