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Location: Formerly Pleasanton Ca, now in Marietta Ga
10,356 posts, read 8,590,712 times
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Taxes will be higher. My taxes are 1900 a year but if not my primary home it’s 5500.
Yes it doesn’t matter if you make money cash flow wise.
I think the irs will force you to take depreciation and then pay it back when you sell.
While you are doing a friend a favor, I’ve seen a lot of friendships get destroyed over deals like this. They usually get a sense of entitlement and it all goes south.
Status:
"I didn't do it, nobody saw me"
(set 7 days ago)
Location: Ocala, FL
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Quote:
Originally Posted by jackmichigan
Your expenses on the second house will be higher. Your property taxes will likely be higher and your insurance will be higher. It will also be an extra property to maintain and to worry about.
A good example of this deals with homeowner's insurance as well. I own a home that is about 1500 sq ft and my mom owns a home about 1900 sq ft in the same community. I pay considerably more for my insurance than my mom because I have the rental in my name and it has been leased out for almost 8 years. Keep in mind that the home owner's insurance rates vary from state to state and I am in Florida.
Since I can't claim that home for homestead, I pay a higher property tax rate than than my mom does on her larger home.
Are there any tax issues or flags when buying more than one house in the same area? I've got a really, really good friend who needs a place to live.. the second home I'm looking to buy would be like a townhouse or condo, for cash. My first home is also a small townhome and I paid cash. If I own two homes in the same area for cash.. is the IRS going to come after me and insist that I label one as rental property? My friend is going to just pay the expenses that I would have had to pay to own the second home (property tax, home insurance, utilities, hoa, and maybe some upkeep with appliances/yard/roof). So I'm not profiting, other than if the house goes up in value, if I sell it like 10 years from now.
I'm just wondering... since I'm going to be listed as a homeowner with 2 residences and no rental property.. is this an issue? I read somewhere about an annual gift limit.. which is 18K to a friend or family member in 2024. The rental market in this area isn't high.
Any red flags I should know of ahead of time before doing this? Btw, I've lived with this friend in the past and they are super clean, (cleaner than me), and super respectful.. older. No kids. No pets. I'm looking for advice more about when I go to pay my taxes every year is there going to be some issue with me owning 2 properties?
Are you saying that your friend will be “gifting” you the amount of the second property expenses regularly?
It is a bit of a slippery slope IMO with the IRS as you are in fact getting income from her whether or not your revenue doesn’t exceed your expenses and in your mind “you are not making a profit” - then it is ok?
No.It isn’t ok.
I wouldn’t like to argue with the IRS that it is an annual gift from her out of her riches and goodness of her heart when in fact she lives “free” in your place. Not worth it.
The IRS may question the so called gift if she isn’t wealthy and it is 1/3 or more of her income? It is very sketchy
Will you keep the utilities, her internet, etc in your own name too?
What if she stops paying? Let someone else to live there? Damage or even destroy your property by accident ?
How are you going to insure your property?
You must be upfront with your homeowners: personally occupied or letting someone live there may have repercussions if/when you need coverage.
“Empty” or “rented” second homes have different insurance rates; lying to insurance company isn’t recommended either.
Once discovered say goodbye to your coverage..
What about your liability - someone gets hurt on your property - now what?
So, why won’t you rent it to her officially?
Are you trying to hide your income? It doesn’t look like you may save tons of money in income taxes? A lot of pitfalls not worth it if you want to sleep well
What is your motive?
Not even discussing her or her BF, etc becoming squatters…your need to evict, pay for damages, legal stuff etc.
will she cover that?
Last edited by L00k4ward; 01-28-2024 at 11:54 AM..
Ok, these are all good points. Thanks all for responding!
I didn't know my property taxes would be higher and insurance higher.
It typically depends on the state and even possibly the County or municipality. For instance:
1.) Florida gives you "homestead credit" if you own the property and it's your primary/legal residence. This is done by a credit against the assessed value, like $50,000. If my assessed value is $300,000, I am only taxed on a property value of $250,000.
2.) Arizona doesn't do homestead credit. If your property is your primary/legal residence, you get a credit for a portion of the local school tax. At least this is what I'm told for the part of Northern Arizona where my home is located in. The assessor's office said I would receive about $800 in credit annually if my home there was my primary residence. My current tax bill is about $2,000.
My point is, that tax credits, or whatever they might be called, are dealt with in a myriad of different ways, typically depending on state laws. If you're concerned about the tax exposure, you need to do your due diligence with the assessor for the area.
Are there any tax issues or flags when buying more than one house in the same area? I've got a really, really good friend who needs a place to live.. the second home I'm looking to buy would be like a townhouse or condo, for cash. My first home is also a small townhome and I paid cash. If I own two homes in the same area for cash.. is the IRS going to come after me and insist that I label one as rental property? My friend is going to just pay the expenses that I would have had to pay to own the second home (property tax, home insurance, utilities, hoa, and maybe some upkeep with appliances/yard/roof). So I'm not profiting, other than if the house goes up in value, if I sell it like 10 years from now.
I'm just wondering... since I'm going to be listed as a homeowner with 2 residences and no rental property.. is this an issue? I read somewhere about an annual gift limit.. which is 18K to a friend or family member in 2024. The rental market in this area isn't high.
Any red flags I should know of ahead of time before doing this? Btw, I've lived with this friend in the past and they are super clean, (cleaner than me), and super respectful.. older. No kids. No pets. I'm looking for advice more about when I go to pay my taxes every year is there going to be some issue with me owning 2 properties?
What you are describing is a rental and since that person is paying you that needs to be reported as income. You need to see a CPA who can show you what a rental schedule would look like.
Are there any tax issues or flags when buying more than one house in the same area? I've got a really, really good friend who needs a place to live.. the second home I'm looking to buy would be like a townhouse or condo, for cash. My first home is also a small townhome and I paid cash. If I own two homes in the same area for cash.. is the IRS going to come after me and insist that I label one as rental property? My friend is going to just pay the expenses that I would have had to pay to own the second home (property tax, home insurance, utilities, hoa, and maybe some upkeep with appliances/yard/roof). So I'm not profiting, other than if the house goes up in value, if I sell it like 10 years from now.
I'm just wondering... since I'm going to be listed as a homeowner with 2 residences and no rental property.. is this an issue? I read somewhere about an annual gift limit.. which is 18K to a friend or family member in 2024. The rental market in this area isn't high.
Any red flags I should know of ahead of time before doing this? Btw, I've lived with this friend in the past and they are super clean, (cleaner than me), and super respectful.. older. No kids. No pets. I'm looking for advice more about when I go to pay my taxes every year is there going to be some issue with me owning 2 properties?
It's a rental. You will have to report it to the IRS as a rental. Go to the IRS website and look for Schedule E and its instruction booklet.
Whatever your friend pays toward expenses is rental income from which you deduct the expenses (including depreciation).
That you don't make a profit is irrelevant.
Your property taxes may also be different for a rental so you'll have to notify the tax agency.
If the fridge breaks and you buy a new fridge, your friend wont want to pay for the new fridge. You will feel guilty because the new stainless fridge will make the house worth more for resale, in your eyes, so you won't ask your friend to pay for it.
Ditto for landscaping issues such as mulch or dead grass or a roof or painting. Friend(and probably you) will deem these items as upgrades that make the home worth more, thus not something the friend should pay for. Same with a new roof or carpeting or a new water heater or washer/dryer/oven/stove, etc.
IMO, charge a fixed monthly rent amount and figure into the rent the expected maintenance cost of all these items that can go bad at any time. Expect insurance and real estate taxes to increase annually. You need a fund (taken from fixed monthly rent) so you can pay for the new fridge or water heater without asking your friend for the money. Otherwise all the money for fixing things comes out of your pocket.
Also realize - you are losing money by not earning interest for the amount of cash you paid for the property. In other words, if you pay $100,000 in cash for the property, you aren't getting 5.2%+ interest on that cash, which is the amount you can get right now if that money was sitting in a CD or money market. That's a $5000/year loss for the honor of giving your friend a place to live.
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