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Jointly owned rental property

Technical topics regarding tax preparation.
#1
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Mom and daughter own a home property together as joint tenants. Mom and deceased husband used this home as personal residence, and then after dad died, mom added daughter to the title and they started renting it out.

All the rental income is sent directly to daughter (and her SSN) from the property manager, and daughter places income in a joint bank account. All expenses related to house are then paid from this joint bank account, except for the mortgage, which is still just in mom's name and mom pays herself.

All the net income from the property goes to pay for mom's living expenses in an assisted living home. Daughter does not get any proceeds from this. This house will be inherited by daughter after mom dies.

How do I handle this on the tax return? My initial thought is that mom claims all the income and expenses, as it doesn't need to be a proportionate split. But what about depreciation? Do I only depreciated only 1/2 of the house? I know there will be a step up once mom passes away. Mom already filed her tax return without anything related to the house at all, so trying to make this "easy" and right.

Thanks.
 

#2
JR1  
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I'm a little torn. Sure sounds like mom has all the burdens of ownership...so I'd be inclined to give it all to her. INcluding the depreciation. I don't like that the rent gets paid to daughter, tho'. Maybe I'll make the case that she's handling it for mom and mom's the nominee....but if anything is issued to IRS, I'd report something in and out on daughter's 1040 to tie to computers.
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#3
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Thanks. I definitely will match the 1099 as nominee. The depreciation is what gets me. Should the mom really end up with depreciating the full house when it's jointly owned? I can see an argument about the income and expenses flowing through to mom, but not even sure how to look for the deprecation.

To make matters worse - there will be a step-down in basis (dad's 1/2) since it has gone down in value. And mom has filed the return already (daughter is my client) so will have to amend.

And mom didn't file a gift tax return either for the 1/2 house gift. But there is literally no estate for mom except for this house - that's why all rental income is going to mom......
 

#4
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Updated information.

The mom has zero access to this joint checking account. There was other income from mom's savings that went into joint account for daughter to handle, so one can say that mom's 2017 expenses were paid from her other income. Mom really wants daughter to own the house outright, but there was a titling issue that would have triggered prepayment of mortgage due. Daughter actually paid for expenses from her own account, not touching this rental income money yet.

What if daughter withdraws the rental income from joint account to her own account (1099 is in her sole name anyways). And going forward daughter would receive money and pay all rental expenses. Daughter was literally transferring all rental income she received separately to go into joint account. And if daughter needs to cover some of mom's expenses (which she has been doing ad hoc anyways) then she can just cover for mom from her own account. That way, all the burdens of ownership are on daughter.

BUT, the mortgage is in mom's sole name and mom pays for it from some separate account (again it has something to do with the titling). How would mom just claim the mortgage expense. Sch E rental with no income or depreciation or other expenses? That seems very odd and not correct....
 

#5
JR1  
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There's so many issues here, not sure where to begin. Gift tax. I don't think mom really wants this once she's been 'splained to what this does to her daughter...
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#6
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I know that the house gift tax is an issue to the daughter. But it's more of just a reporting issue since mom doesn't have anything. I don't prepare the mom's return, but I did mention to daughter about the 1/2 house as a gift. That return is late since mom filed on time.

What other problems are you seeing? (besides everything). I can see their thought process why this wouldn't be a horrible idea - it's just me trying to figure out how to put this on a tax return.

IF daughter just kept all of the money herself, then she bears the burden I would think of income and associated expenses, including deprecation.

Interest expense? What do I do here?

What am I not seeing?

THANKS!
 

#7
JR1  
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Now I'm inclined to shift it all to the daughter, file a 709 for mom to show the lifetime exclusion use, no tax due....the mortgage is the sticky issue in mom's name which daughter claims on the Sch. E.....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#8
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I am inclined to switch to daughter too.

But what in the world do I do with the mortgage interest? It would be so easy for a Sch A issue. But for Sch E? I am completely stuck on this one.
 

#9
JR1  
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Probably the best move would be to have a note agreement between mom and daughter which mimics her mortgage, have mom report the in and out to keep computers happy.....but legally, this kicks up the due on sale clause in most mortgages, so daughter can't record it or anything to make it legal, or mom would have to pay off and daughter refi.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#10
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viewtopic.php?f=8&t=10738&p=98943&hilit=mortgage+title+deduction#p98943

Do you think this might apply? The reference article midway down seems like if daughter paid the interest from her own account, then she should be able to get the deduction.
 

#11
JR1  
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I dunno. Someone else should speak into that....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#12
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Any other thoughts out there related to the mortgage interest? Thanks....
 


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