my sister (has her own home) owns a home in florida that she rents to her son at fair rental value. I recently learned from my niece (who has POA) that lawyer put son's name on deed, so now the deed is in both names (my sister and her son), there was no quit claim deed and no ownership percentage on this house. my sister has been filing tax return claiming income on schedule E and the only expenses are real estate tax and insurance and depreciation so there is profit. I guess my confusion is if son owns part of the house does he have to pay her rent and does she still claim rent received. any help is appreciated to clear my thinking.
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Even if son does not own a portion of the house, he does not need to pay rent if mothers intention is for him to live there rent free. In that case it is not a rental property so no Schedule E deductions. Unlikely, but if the rent free living is more than the annual exclusion a gift tax return may need to be filed.
I do think you need to get more info as to if ownership changed. If it did, you sister may have taken too much depreciation if there was a time in which she did not own 100% of house. -
Generally putting a second name as a joint owner on real estate is considered a completed gift. See Reg. §25.2511-1(h)(5).
It appears (based on the limited facts) that mom made a gift of ½ the house to the son. A form 709 appears to be needed. This whole fact pattern suggests some inquiry is needed if mom truly had no part in this transfer.Comment
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Based on the limited facts provided we don't know if all the parties ... mom, son and niece (who has the POA) understood what they were doing and the tax implications of doing it. It might be time to ask the lawyer who handled this some tough questions. I would lay long odds that the lawyer is not one who specializes in estate planning.
Putting assets into joint tenancy is often a good thing to do when the JTs are H&W. Doing the same thing with another relative or with a non-relative, however, is usually a bad idea. Not only did the transfer trigger a gift tax reporting requirement and a possible gift tax liability, as NYEA correctly points out above, but it also ate into her unified estate/gift tax exemption. Furthermore, if mom will have a taxable estate when she dies, the JT move she made with her son will trigger a double-whammy. That's because JT property is included in a decedent's estate at 100% of its value, unless the other JT can prove that his interest was acquired with his own funds.
As far as the rental aspects of this are concerned, everything was reduced by 50% for the mother when the JT was created ... the rent, depreciation and other expenses.Roland Slugg
"I do what I can."Comment
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I disagree. The rent and expenses other than depreciation go to who received/spent cash regardless of ownership percentage.
It appears FL has a special kind of deed called Lady Bird Deed. Better to have someone who understands FL deed law sort out what happened and the actual ownership b4 and tax forms are filed/amended.Comment
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thank you kathy
I looked up florida and lady bird deeds and am now looking at what it involves, and I have some questions to ask my niece. it's a place to start, thank you. I knew I would get some good info from this board.Comment
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new info
some clarification on my post. niece tells me her mom signed a regular quit claim and put son's name so they could get the homestead exclusion, and he will inherit the property when my sister passes. this was done 4/2014 and I am assuming my sister needs to file a gift tax. the property has appraisal value of $155,400. I have never filed a gift tax return and I am confused as to what amount should be claimed as a gift when there is no percentage of ownership. does a preparer just assume half as a gift? any help would be appreciated.Comment
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Generally, a quitclaim deed is where the grantor transfers their entire interest to the grantee, with no warranty claim on the deed to chain of title. You can ask for a copy of it to make sure this is what they did. Don't just accept what they are telling you. Get a copy. In that case, she no longer owns it and it ceases to be her property. And the gift tax return may need to include the entire FMV.Last edited by Burke; 10-08-2015, 10:53 AM.Comment
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copy of quit claim
niece emailed me copy of quit claim. : it states joint tenants with rights of survivorship. but next paragraph says sister paid $10 and that she release quit claim unto son forever, all the right, title, interest, claim and demand which said first party has in and to the following described lot etc etc . sounds like the second paragraph contradicts the first paragraph.
my niece understands that her brother's name is on the deed so my sister could get the homestead exclusion and that both my sister and son own the property and he gets the property when my sister passes. I am also questioning if my sister can insist on full rent for property that son also owns or should she be at least cutting rent in half?
I have never done a gift tax return , so I am going to recommend that niece go to professional preparer to file it.Comment
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She can charge any amount of rent she wants, if he is willing to pay it. But the ownership interest now is only 1/2, and all income and deductible expenses would have to be split between them if it is treated as rental property. (Looks like the gift tax return would be 50% of FMV less the $10 paid for consideration.) Total depreciable basis on the Sche E(s) would not change, but each would get half.Comment
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