assisted living agreement - Sched c or sched e?

[dkss]

Client has entered into an "Assisted Living Residential Lease Agreement" to care for her mother. She leases a space in her home (exclusive use of 2 rooms and a bathroom and use of common areas) to her mother and is required to furnish some services such as nutrition monitoring, food preparation/service, daily safety checks, daily housekeeping, weekly linen service, managing med insurance, reviewing and responding to mail, and assistance with paying bills.

Does the amount of services provided change this from rental income to SE income? Or should it allocated between Sched E and Sched C? Or doesn't change anything and should be reported on Sched E?

Any discussion and input would be greatly appreciated.

[ATSMAN]

I am not sure how your state handles it but in MA they issue a W2 to the caregiver for the amount paid. The person being cared is a dependent on the taxpayers return.

We do Sch A med expenses.

[dkss]

My client's mother pays the lease - not the state.

[TaxGuyBill]

The services definitely would make it a Schedule C business.


Is there a reason why they are setting up a business arrangement like this?
Wouldn't the loving daughter want to help her mother as best as she can, without charge?
Wouldn't the mother want to show appreciation for all of the work that the daughter is doing by contributing to household expenses, and giving her daughter an occasional, random gift of money?

[Burke]

Sounds like Mother is receiving some kind of government benefit that requires this arrangement?

[dkss]

No government assistance.

Yes, you would think that dear daughter would cherish her mom enough to take care of her.

But, daughter and son arranged this agreement with the help of lawyer. Perhaps to spend down assets in anticipation of nursing home care in the future? Apparently, there is a second agreement that gives more dollars for the service end of things. I am still waiting to get a copy of the second agreement. I think that their intent was to have a rent agreement and a separate service agreement. But somewhere along the way the service paragraph was duplicated in the lease agreement?

I am just trying to report the income accurately.

[Lion]

Household Employee with payroll and W-2, maybe?

[Burke]

But, daughter and son arranged this agreement with the help of lawyer. Perhaps to spend down assets in anticipation of nursing home care in the future? Apparently, there is a second agreement that gives more dollars for the service end of things. I am still waiting to get a copy of the second agreement. I think that their intent was to have a rent agreement and a separate service agreement. But somewhere along the way the service paragraph was duplicated in the lease agreement?

I am just trying to report the income accurately.

This way the expenses will qualify as medical expense on the mother's tax return. Perhaps that was the intent. And, probably more importantly, as you say, to spend down the assets so that they would not be involved in Medicaid "claw-back" of transfers of cash assets within a certain time frame. As Lion said, mother could issue W-2 at end of year, and report FICA taxes on her return annually via Sche H. (Which would also be a medical deduction.)

[dkss]

I guess I am not seeing why my client should get a w-2 and be treated as a household employee when this is all happening in my clients house.

[Lion]

That's why I had a ? However, a household employee does not have to work in a house owned by the employer, just in the same house in which the employer lives.

It doesn't sound as if the daughter does anything medical for her mother, just general care. Is daughter a medical professional? Why did you say that mother gets to deduct these expenses as medical deductions? Is she just laundering her money so the rest of us taxpayers get to pay for her medicare facility after daughter gets all of mother's monies? Buy long-term care insurance.

[dkss]

Just general care.

My client is not a healthcare professional.

I did not say that the mother will take it as a medical deduction. I do not do her return, so I don't know how she will handle things on her end. But I do know that she will not be issuing a W-2 to my client.

[DonB]

I guess I am not seeing why my client should get a w-2 and be treated as a household employee when this is all happening in my clients house.

I would have an allocation between rental and services and report the rental on schedule E using the vacation home rules, and the services on 1040 line 21. I would consider no SE Tax as your client is not in the business of elderly care. She is presumably doing her mother a good deed and is not open to taking on other clients now or in the future.

[Roland Slugg]

Are you people serious?

A W-2? Schedule E? Or maybe Schedule C and S-E tax? Household employment status? Gee, maybe set up an LLC, too, or perhaps a corporation.

Or ....

How about just taking care of mom and not reporting the sums she pays as income at all, but simply treating them as a recovery of shared living expenses?

[Lion]

Because daughter has a contract saying they're payments for services. Daughter is acting like she's in business: contracts, lawyer, job description, pricing structure, etc., so she'll have to report her business income. Daughter didn't ask OP how to set this up. She did that via a lawyer and now OP has to report was was already done.

[TAXNJ]

Slugg is right

No government assistance.

Yes, you would think that dear daughter would cherish her mom enough to take care of her.

But, daughter and son arranged this agreement with the help of lawyer. Perhaps to spend down assets in anticipation of nursing home care in the future? Apparently, there is a second agreement that gives more dollars for the service end of things. I am still waiting to get a copy of the second agreement. I think that their intent was to have a rent agreement and a separate service agreement. But somewhere along the way the service paragraph was duplicated in the lease agreement?

I am just trying to report the income accurately.

SLUGG's reply post says it well. But you are saying here you do not have all the facts (missing second agreement) so why not wait until you gather all the facts and also talk to lawyer who set up the agreement (hopefully the person was a tax attorney), then you would know what the planning purpose intent.

Suggest you get all the facts and it may turn out easier for you to do what you say you are trying to do.