RENT TO YOUR PARENTS - A TAX SAVINGS IDEA.
Parents who live in the family home, despite the depressed real estate market, have seen appreciation in their homes. If properly planned and executed, parents may be able to sell their home to a child and lease it back, thereby eliminating their mortgage should one exist. It's a great planning vehicle as parents are able to free up cash from the sale that might not have otherwise been available. And if they had an existing mortgage, they probably had little or no benefit from the deduction as most retired taxpayers use the standard deduction due to fewer other expenses. Just a couple of key points to take into consideration:
- Make sure you pay fair market value when you sell the house. This would involve hiring an appraiser to lessen any scrutiny by the IRS. And in today market, it would be a good time to sell to a family member.
- When structuring the lease between family members, make certain you're paying market rent. However, recent a recent court case allowed a family member a 20% rent discount off current market rates simply because there was less risk of loss and management costs.
So this is a great opportunity to help yourself while helping your parents. And look at it this way; should you decide to move in down the road, you only have to stay there a couple years and you're entitled to shelter up to $250k on the ultimate sale.
Renting has it's advantages; great tax saving opportunities, and a great tenant.
