Mother deeds Rental house to Daughter

[Brian EA]

My client has been renting a house for the last 2 years. In april of 2005 she deeds the house to her daughter. Her daughter then had a refi done with her name on the mtg.Daughter is still renting the house.

Mother receives 1098 from mtg company for the 3 months. Daughter receives 1098 for the rest of the year including Real estate taxes paid.

Any thoughts on how mother and daughter should file their returns. Should the mother file for the 3 months and then the daughter takes over and continue the depreciation?

Thanks

[veritas]

Why did they do the dirty deed?

[Brian EA]

Why did they do the dirty deed?

Beats me but now I will have to figure out how to report this

[veritas]

I would want to know what their thinking process was. Was it beacuse of medicaid? Or was it because mother could not get financing? Then I might be able to decide how to handle it.

[Brian EA]

I would want to know what their thinking process was. Was it beacuse of medicaid? Or was it because mother could not get financing? Then I might be able to decide how to handle it.

They would not give me a reason. Mother is 71 years old and she is working making $67000 per year. Mother lives with unmarried 35 year old daughter .Daughter make $150000 per year.
Mother sold a rental last april and netted $ 165000 which is all capital gains. I told her she should have called me and we could have arranged for a 1031 exchange because she bought another rental.In all mother has 4 rentals and daughter has 3.

Well, What is the truth
Need to file this return ASAP. I told them that I will do some research and let them know.

[veritas]

Ok I'm thinking I would try this. Mother rented house for 3 months. Mother sold house to daughter. Daughter is presently making payments to mother and paid off mother's mortgage which is part of sales price.

It bothers me when a client holds back information as to their intent. I would probably push the issue and if they got mad and left so be it.

[Brian EA]

Ok I'm thinking I would try this. Mother rented house for 3 months. Mother sold house to daughter. Daughter is presently making payments to mother and paid off mother's mortgage which is part of sales price.

It bothers me when a client holds back information as to their intent. I would probably push the issue and if they got mad and left so be it.

Client just called saying that she quit claim property to daughter because she could not refi . Her credit is poor and her income which is pretty high in not enough.

So mother owned rental property for 3 months and the daughter for the rest of the year.

Would this consider to be a sale.?

[Gretel]

If I understand this right:

Mother owned rental and gifted it to daughter. So, gift tax returns is due for FMV of rental minus mortgage. Mother reports as sales proceeds whatever this FMV is but she can not have a loss.

Then daughter starts rental as new property with same value for depreciation as was gifted to her.

I am not sure if you have to watch for related party rules besides of mother not being able to take a loss.

[Brian EA]

Attn:BEES, MATT JAINEN, KOSS, EVERYONE

NEED HELP ON THIS ONE.

I have to see these clients tomorrow with an answer. How do you handle this situation.Cannot find anything in the book.

Mother deeds rental house to daughter.

Thanks

[Matt Sova]

Gift

I think Gabriele hit it on the head. Mother gifted the rental to the daughter and should file a gift tax return. Daughter takes over mother's basis and continues depreciating - she does not get a step up in basis on a gift.

Mom reports rental income and expenses for the first xxx days. Daughter reports income and expenses for the rest of the year.

[veritas]

Brian,

I had a similar circumstance where my client who had bad credit needed to refinance in order to lower the monthly mortgage. He quit claimed the property to his mother who was able to obtain a favorable interest rate. Had they not done this the son would have lost the home.

I continued to treat the home as the son's and deducted the mortgage interest and taxes which he paid but was in his mother's name.

I did this based on something I read in The Other Book. TC Memo 1997-551

[Brian EA]

Brian,

I had a similar circumstance where my client who had bad credit needed to refinance in order to lower the monthly mortgage. He quit claimed the property to his mother who was able to obtain a favorable interest rate. Had they not done this the son would have lost the home.

I continued to treat the home as the son's and deducted the mortgage interest and taxes which he paid but was in his mother's name.

I did this based on something I read in The Other Book. TC Memo 1997-551

Veritas
This would be great, however the daughter received the 1098 in her own name and ss#. This is the only problem .How do you handle this?

[Gretel]

Not Veritas, but you attach an explanation to the tax reutrn as to the facts and circumstances.

[Gretel]

Not Veritas, but you attach an explanation to the tax reutrn as to the facts and circumstances.

[Brian EA]

Any more ideas or suggestions would be highly appreciated