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"For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home."
"Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year."
"For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home."
"Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year."
My parents did not pay rent.
While your parents may have not paid you "rent," did they pay any of your expenses to maintain the house?
It doesn't sound like they are simply guests as they are probably listing this home as their Primary residence and you would probably have to evict them to remove them from the property.
It does not sound like you are legitimately using this home as YOUR second home.
I am not a lawyer and I am honestly not trying to be argumentative... This is a legitimate inquiry as we have a family that is retiring soon and are looking for the best way to handle the purchase of a home for them.
While your parents may have not paid you "rent," did they pay any of your expenses to maintain the house?
It doesn't sound like they are simply guests as they are probably listing this home as their Primary residence and you would probably have to evict them to remove them from the property.
It does not sound like you are legitimately using this home as YOUR second home.
I am not a lawyer and I am honestly not trying to be argumentative... This is a legitimate inquiry as we have a family that is retiring soon and are looking for the best way to handle the purchase of a home for them.
They did not pay rent. They did not pay any upkeep. Fortunately, the house was new and needed no real upkeep while they lived in it. No appliance problems, no need for a new roof, no major painting or new carpet. There was one small repair to a window frame and replacement of some shutters. It sold without us doing paint or new carpet, either, though the builder grade carpet did need replacing in the main living area and hallway by that time. The bedrooms were fine. No small kids, no pets, and people who are accustomed to taking care of things makes a big difference. We paid for a maid and lawn care when they were no longer able to do those things.
Since we in essence borrowed the down payment from them, we were sort of paying them to live in the house! The money we borrowed from them was set up as a formal mortgage with a regular monthly payment. The loan officer at the bank handled the documents when we set up the first mortgage.
We would indeed have had to evict them if we ever wanted them out and they refused to leave, but our family is not into such nonsense, fortunately. It was their primary residence, obviously.
If you read the IRS link in my previous post, you will find you are allowed to deduct interest on two houses, one of which you do not personally occupy. I suspect the thinking is that someone might own one home, need to move (say for work) and buy a new home before the first house sold.
If you charge rent, the interest becomes investment interest and is handled differently.
My husband and I moved out of state and away from all of our family and friends a few years ago. Now, things are different since we have a 5 month old baby. We are spending about $700 per month on babysitting right now. Husband's idea is to move his parents to our neighborhood. His father is having some health problems so he wants them to be nearby as it is hard for him to take time off and travel each time there is an event. Also, his parents would be able to help out babysitting and our little one would get to grow up with her grandparents close by. We would have to purchase the house under our name and this would be a second mortgage for us. His parents would pay HOA plus property taxes and we would pay the mortgage. He says we would get all the tax advantages that go with home buying and there would be no more wasted money spent on babysitting. Instead, the money we would have spent on babysitting would go towards the mortgage which builds equity.
The mortgage for this home that we would be paying is about $2400 per month for 15 years. Our house right now is about $4000 per month for 15 years. After everything is said with all of our other expenses we would be saving only $2100/month. Without the second mortgage we save about $4500/month. I know that sounds pretty good but we are used to having a larger savings each month as before we purchased our home we were saving on average $10,000 per month so that is why we are questioning if this is a smart decision.
Advice? I know the other alternative is to take them into our own home. That would not be our first preference though as we all enjoy our own separate private living quarters. Also, his parents would not be able to contribute more financially to this other than the HOA and property taxes. We could do a home that is cheaper but further away (about 30 min away) but I have to admit that it would make things a lot easier if they were right across our street. Plus, we are thinking the home in our neighborhood would go up in value more than a cheaper one in a different neighborhood.
I would appreciate any input. Thanks!
Why not buy a duplex that's only slightly more expensive than your current place and live in one side and take them into the other?
If you buy them another house, you'll be overextended in case either of you gets the pink slip.
I don't understand how paying $2400 per month for someone's mortgage would be better off than paying $700 on babysitting. Yes, you are building up equity, but at what cost? Surely you are paying more than $700 in interest per month for the first few years. How long will you be paying $700 in babysitting? Plus, the babysitting is tax deductible, too, if you are using it so you can work. If you are looking to make financial gain then buying a house and renting it to strangers sounds like it would be a better financial deal than someone just covering the taxes and HOA fees. Plus, as someone else mentioned, can you really count on them to babysit if the father is already having some health problems? Caring for a baby all day is not easy work - even for the young and healthy.
If you want to move his parents to be near you because you want them near you then fine, but I wouldn't count on it being a smart financial move or for built-in babysitters.
Someone else? That's parents. They raised you, gave you a life.
nothing is ever a problem , until it's a problem. the fact you say it worked out only means so far you have not hit a problem. odds are the trifecta from financial hell will strike most of us at one point or another. job loss -illness -divorce can all create havoc in not only your lives but your parents too if you are forced to unload that house.
not a good idea in my opinion and not allowing for uncertainty but trying to rule it out..
with those 3 big financial mine fields i think it is a foolish choice and playing the odds. rent them a place , invest the money in faster growing assets than residential real estate.
at least if you rent them a place and their landlord defaults and loses the place you are financially okay to just find them another. linking your financial lives and theirs so tightly together can be a bad idea.
Last edited by mathjak107; 09-28-2014 at 06:29 AM..
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