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I am now living with my 80 plus year old mother, and taking care of her. She needs financial help, and so I was thinking about paying her rent, rather than just gifting her the money, as this will enable her to obtain loans if she needs them on her property, by raising her income. I checked, and the amount I will pay, which is fair market value, will not raise her income taxes, but she does have extremely low taxes due to Prop 13. Will renting from her jeopardize her low property taxes? She doesn't intend to depreciate any of the property, and does not need to do so in order to avoid paying any additional income tax. So this is my one concern.
I have no idea about the prop 13 implications. However, heads up on the depreciation issue. Depreciation isn't an option. You don't just get to decide whether or not you will take it.
Reassessment under Prop 13 only happens if the property is transferred or improvements made...
There are limited exceptions to transfer reassessment such as parent/child or between spouses and sometimes you may be able to take your exemption with you one time if you buy a less expensive home withing the county or one of the few counties that allow out of county transfers.
Renting the home will have no affect on taxes especially if your Mom still lives there... she would loose her Home Owner's exemption if she no longer lived there which typically is about $100 a year.
PS... your tax person can advise what tax benefits there are for Mom being a Landlord and you being a Tenant...
Also, many lenders severely discount rental income and some will not recognize it unless it shows up on several years of tax returns... it's a problem I have faced.
I checked, and the amount I will pay, which is fair market value, will not raise her income taxes
It may not raise her tax rate, but it will increase the amount of tax she pays. For example, if she has to declare an additional $10,000 in rental income, she will need to pay state and federal tax ($3000 ?) on that income. If you gift her $10k, she owes no tax.
Reassessment under Prop 13 only happens if the property is transferred or improvements made...
^^^
This.
Renting - and her reporting the income opens up a whole different ball of wax.
Just live with her and pay for things. You don't have to 'gift' her the money. Pay the utilities, pay for the food, whatever she needs help with. If she still owes a mortgage, you can even pay that if you don't mind her getting the interest deduction.
I am now living with my 80 plus year old mother, and taking care of her. She needs financial help, and so I was thinking about paying her rent, rather than just gifting her the money, as this will enable her to obtain loans if she needs them on her property, by raising her income. I checked, and the amount I will pay, which is fair market value, will not raise her income taxes, but she does have extremely low taxes due to Prop 13. Will renting from her jeopardize her low property taxes? She doesn't intend to depreciate any of the property, and does not need to do so in order to avoid paying any additional income tax. So this is my one concern.
I appreciate any and all help on this subject.
Whether she intends to depreciate the property or not, keep in mind, the IRS will assume depreciation has been occurring. All she would do is avoid any tax advantages now yet she would still have to recapture the depreciation (that she didn't even get!) should she sell later. There is no disadvantage of depreciating now. By depreciating now, she can offset the income.
Unless the plan is for you to inherit the home and along with it a stepped up basis...
Also parent child transfer should not affect prop 13 but it is not automatic... you must apply for it with the assessor along with supporting documentation.
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