Gift of Rentals then lease back

[BillV]

Client wants to give away two SFR rentels to her children. Since children do not want to be concerned with renters client wants to lease back the property in order to handle the rental activity and show income or loss on clients tax return. No written lease from children exists. Your comments with written lease or not would be appreciated.

[Burke]

What is SFR? Are children leasing at present? Owner cannot give property away and then depreciate it as she no longer owns it. Owner better have a lease if owner wants to treat as rental property.

[taxxcpa]

Rental

Client wants to give away two SFR rentels to her children. Since children do not want to be concerned with renters client wants to lease back the property in order to handle the rental activity and show income or loss on clients tax return. No written lease from children exists. Your comments with written lease or not would be appreciated.

SFR? Is that "Single-Family-Residence?" I've never heard of SFR before. It is not as common as something like COD or PDQ.

If it is given to the children, their basis would be same as the donor's basis. They would use that for depreciation.

She can lease it back and pay the children a rental payment (from her to the children) Rent paid to the children would be income to them and expense to him.\

They would need to decide who was going to pay the taxes, interest (if any), repairs and other costs of maintaining the property.

You also need to look into the way to report income and expense for property leased in order to sub-lease it to the tenants. Schedule C or Schedule E?

Maybe a family LLC would be a better approach.

[SFBOB]

Client Acts As Property Manager

Would this be a simple answer?The children get the benefits on their tax returns,[they own the property. I do not see any need for a lease back situation. My remarks for what they may be worth. Have A Good One Bob

[SFBOB]

Sorry Re Read The Question

Missed the fact that your client wants the Income and Deductions.What is your clients objective in this transaction? Tax Aviodance or gifting to the children prior to your clients death. Maybe your client is concerned about how the new Estate Tax Law may shake out.

[solomon]

Client wants to give away two SFR rentels to her children. Since children do not want to be concerned with renters client wants to lease back the property in order to handle the rental activity and show income or loss on clients tax return. No written lease from children exists. Your comments with written lease or not would be appreciated.

It seems to me this might not meet the Economic Substance Doctrine. That is to say, how can a gift meet one of the prongs of this doctrine which is having a valid business purpose. Although some courts have just looked at the leaseback if it is a valid business purpose, others have looked at the gift and leaseback as a unit and thus found no valid business purpose. Virtually all of these were set up in a trust and then leased back.