Posted on: 29th May, 2007 02:25 pm
My parents, in their early 60's have fallen on financial hard times and cannot maintain their monthly bills. They have fallen behind on their mortgage 3 times just this year. I have brought them current in each instance by paying the entire monthly mortgage. The problem is not going to go away and if I am unable to continue to loan them money to keep them current, they will face a foreclosure in the near future.
The money I have loaned them to bring things current is getting to be substantial and I know that I will never see any return on it unless I buy their house, via "subject-to" or they sign a "quitclaim". I would like to buy their house in a "subject-to" agreement and then rent their house to them at a rate that they can more afford. I will then assume the difference in what is affordable to them and what their current monthly mortgage payment is. By doing this, they can still live in their home. I can recover my money.
Some of the questions I have in regards to this is:
-Since I am not sure I can get another mortgage to buy thier house out right, since I have one of my own, is this an applicable way of doing it?
-What tax implications to I face?
-Do I claim the interest on their existing loan?
-Do I claim the property tax?
-Will their rent be taxable income to me?
Michigan Mark
The money I have loaned them to bring things current is getting to be substantial and I know that I will never see any return on it unless I buy their house, via "subject-to" or they sign a "quitclaim". I would like to buy their house in a "subject-to" agreement and then rent their house to them at a rate that they can more afford. I will then assume the difference in what is affordable to them and what their current monthly mortgage payment is. By doing this, they can still live in their home. I can recover my money.
Some of the questions I have in regards to this is:
-Since I am not sure I can get another mortgage to buy thier house out right, since I have one of my own, is this an applicable way of doing it?
-What tax implications to I face?
-Do I claim the interest on their existing loan?
-Do I claim the property tax?
-Will their rent be taxable income to me?
Michigan Mark
Hi Mark,
At the time you buy the house there are no tax implications for you.
The other thing you have asked about claiming interest on their existing loan, that you will be able to do that after you assume the mortgage from your parents. Until you are on the loan you cannot claim the interest.
You also need to check whether you will be allowed to assume the existing mortgage that is your parent's name. And after you have the ownership you will be able to claim property taxes.
Miller
At the time you buy the house there are no tax implications for you.
The other thing you have asked about claiming interest on their existing loan, that you will be able to do that after you assume the mortgage from your parents. Until you are on the loan you cannot claim the interest.
You also need to check whether you will be allowed to assume the existing mortgage that is your parent's name. And after you have the ownership you will be able to claim property taxes.
Miller
"-Will their rent be taxable income to me? "
Yes Mark te rental income you will receive from your parents would be taxable.
Yes Mark te rental income you will receive from your parents would be taxable.
Hi Mark,
Welcome to our Community.
"Since I am not sure I can get another mortgage to buy thier house out right, since I have one of my own, is this an applicable way of doing it?"
Definitely you can get another mortgage for this house. But it will depend on your current financial affordability status. And for that you can use various calculators and check how much you can afford.
"Do I claim the interest on their existing loan?"
You cannot claim interest on their existing loan. But on some condition you may claim. Like if you can able to show that they are dependent on you and you are paying on behalf of them. And that transaction should from your account.
"Do I claim the property tax?"
And even I think claiming for property tax will be the same concept as claiming for interest on the existing loan.
"Will their rent be taxable income to me?"
Yeah. Their rent will be taxable income for you. To avoid it, you need to show that you are paying the rent as monthly mortgage payment.
Thanks
Welcome to our Community.
"Since I am not sure I can get another mortgage to buy thier house out right, since I have one of my own, is this an applicable way of doing it?"
Definitely you can get another mortgage for this house. But it will depend on your current financial affordability status. And for that you can use various calculators and check how much you can afford.
"Do I claim the interest on their existing loan?"
You cannot claim interest on their existing loan. But on some condition you may claim. Like if you can able to show that they are dependent on you and you are paying on behalf of them. And that transaction should from your account.
"Do I claim the property tax?"
And even I think claiming for property tax will be the same concept as claiming for interest on the existing loan.
"Will their rent be taxable income to me?"
Yeah. Their rent will be taxable income for you. To avoid it, you need to show that you are paying the rent as monthly mortgage payment.
Thanks