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Yes, absolutely true depending on the amount of income...that's why I suggested bidawiz. It's really inexpensive. But I have clients that have been previously audited because they were clueless about what they were doing and ultimately with the tax trouble they got in, with the accumulated penalties and interest and the personal stress they experienced and with the not sleeping at night, they all wished they had hired me to do their accounting sooner. If this person's mother is suffering from the stress of what to do in the situation, find a tax accountant, pay $100-$140 for a quick consult, get an answer and move on. It's worth it in that regard. Back to my original point, CD is not a place to get tax advice IMO.
of course not. 10 out of 10 cpas would prefer that you hire one rather than try to find the answers on your own. Hire a cpa just to figure out if you need to pay taxes on maybe 6000 income? It'd be cheaper just to pay the taxes than the hire the cpa to tell you if you have to pay them.
exactly why you have to be careful.... If they pay the taxes on the 6,000 income and enter it as rental income by mistake they can be charged back all that recaptured depreciation they should have taken but didnt when they sell..
Tax laws are just chock full of these little traps.
Currently I am living in my mother's home (with my mother). I am paying rent to her as she is technically my landlord. How will this affect her taxes when she files? I imagine she would have to claim it on her yearly income...
Please help! She is a worry wart to say the very least....
Thank you!!
You are technically a roommate. If you are under 25 and attending school, I don't think your mom needs to do anything at all. Consider the payment a reimbursement for groceries, bills, etc. It's an offset/reimbursement, not true income.
But if you are truly renting a vacant, unused room as a non-dependent adult, it could trigger her having to file a Schedule E with her tax return. The percentage portion of the property being used as her primary residence would remain unchanged, but the portion being used for business purposes, whether it's a rental, home office, etc, starts to be treated differently.
I agree that you should visit a CPA. It would be worth the small fee, even they even charge you, to make sure you understand what triggers you are causing. For example, a seller of a primary residence is exempt from Capital Gains taxes up the $250K ($500K married couple) if they've occupied the home any 2 of the previous 5 years. If suddenly a fraction of the home becomes business property, she could have to pay cap gains on that portion. This is just one boobie trap. There are others. Talk to an accountant.
Of course not. 10 out of 10 CPAs would prefer that you hire one rather than try to find the answers on your own. Hire a CPA just to figure out if you need to pay taxes on maybe 6000 income? It'd be cheaper just to pay the taxes than the hire the CPA to tell you if you have to pay them.
Rental Income tax is a lot more complicated than a lot of people realize. If one is going to declare the income, I would definitely either learn the tax law yourself or visit a CPA who specializes in real estate taxes. An Enrolled Agent is worthless.
BTW, there are already a couple of mistakes in this thread by those offering 'help'.
Rental Income tax is a lot more complicated than a lot of people realize.
Just curious why you say this. Rental income is the absolute best income precisely because it is not subject to any complicated taxes. There is no employment tax involved. The schedule E is a simple, straight forward form.
I think the tax implications of selling a home that has been mixed as primary residence and income property can get tricky.
it can get complex, figuring what is a capital expense, whats a deductable expense. the depreciation on appliances ... figuring depreciation recapture in a partially rented house.
ill bet you aot of folks dont even subtract out the land value from a co-op thats a rental proberty when figuring depreciation....
i can come up with lots more stuff too where folks blow it.
Just curious why you say this. Rental income is the absolute best income precisely because it is not subject to any complicated taxes. There is no employment tax involved. The schedule E is a simple, straight forward form.
I think the tax implications of selling a home that has been mixed as primary residence and income property can get tricky.
Steve
Mathjak gave some good examples. The depreciation seems to be the area with the most confusing. Also expenses related to the rental before you took ownership, after you took ownership but before it is available for a rental, and after it is available as a rental are all processed differently.
Some other questions that come up (or should come up) are
How does Schedule E income affect AMT? What is an expense and what is an improvement? How are improvements depreciated? Should the bonus depreciation be taken or not? How much of the property can be depreciated? Are all expenses related to the rental deductible? How much passive activity loss can I deduct from ordinary income? etc.
None of this is rocket science but it is very easy to make a mistake. I am suggesting that either one becomes well versed in this or talk to a CPA. Actually, I strongly recommend one become well versed in this as it should guide your strategy throughout the year.
It really all depends on oif she is making a profit really. Otherwsie in many sitatuions its mopre helping with expenses as few son's/Daughters are a money making thing with parents.Its kind of like do you really apy the entire costy such as her cooking and cleaning etc or calim that as income if you otherwise would ahve to apy to have it domne?Its no problem as far as living with a relation really.
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