Interesting Rental Situaton

[Janitor Bob]

My client's elderly mother moved out of her house and into home of my client. Client's mother's home is now empty and needs a LOT of work. Client's mother takes out an equity line of credit. Gives funds to client (son) to renovate and remodel her home. He fixes it up real nice and is going to rent it out with his mother's permission. He (my client) does not own the property, but the rent checks will go to him in his name. How would I report this rental? Income on his return and expenses on hers.....that seems odd...Or should I match rental income with expenses on the same return...if so, which return? I already do the return for client, but his mother does not normally file as all she has is social security.

[jainen]

>>How would I report this rental?<<

Form 1065.

[joanmcq]

I'd treat him as a property manager. He doesn't own the home, he manages it for his mom. All income and expenses on her return. If you want to keep a clear trail, have him issue her a 1099-Misc for rents received. And he should set up a separate bank account for the rental.

[Guest Taxed]

I agree with joanmcq because the son has no ownership interest in the property, he is basically doing the work on behalf of the real owner (mother). The fact that the rent checks are going in his name could be construed as a nominee holder. I would also recommend that the son and mother draw up an agreement for roles and responsibilities. It is just a matter of time before a tenant has issues and then you will need to clarify roles when you go to housing court for an eviction order. Been there and done that and it is no picnic!

[Janitor Bob]

It is set up just as Joanmcq suggested......This is what I was thinking, but the more I thought about it, the more confused I was becoming. Always nice to hop on this forum and have ones opinions confirmed or debunked.

[joanmcq]

Sometimes we have to step back from the issue; it's so easy to start to overthink things!

I'm sooooo tired now. Need some dinner. Those 12 states wore me out!

[TaxesNE1]

The son would be treated as a common-law trustee. All income and expense should be reported on the mother's return. The client should be advised to set up a formal trust and have the trust become the owner of the rental property through a legal transfer of title. Since the property going in to the trust is owned by the beneficiary (mom) it would be a grantor-type trust. Depending on the size of the mother's estate, this trust idea may prove invaluable in terms of preserving Mom's assets as she gets older and grows more dependent upon government benefits. They need to consult an elder law/trust/estate planning attorney.

[Randall]

The trust stuff sounds like overkill.

[Guest Taxed]

TaxesNE1 is on the right track looking forward. Just did taxes for a lady whose mother went to the nursing home last year without a trust and now she has to sell her 300K beautiful colonial home for paying roughly $12,000 a year nursing home fees. The nursing home put a lien on the woman's property after she checked in.

My client had told her mother for years to get the house out of her name after her 2nd husband passed away like 7 years back, but the old lady does not trust anyone and did not want to pay for a lawyer. So now essentially she is paying for it with her house. In my state if the property is 5 years out of the person's name they are home free! State pays.

[Cathy]

Was just wondering which one is "paying for it now"....the mother or the daughter? Sounds like the daughter is paying for it rather than her mother or maybe she feels as if she's paying for it! However, it wasn't the daughter's house...it was her mother's house, and if the daughter is upset that she wasn't able to hide her Mom's assets so she could have them free and clear when her mother died, then let Mom live with the daughter at her house rather than go to the nursing home......simple solution!

[grandmabee]

that's the problem. so many people want to hide assets and let the government (US TAXPAYERS) pay for nursing home expenses. Sell the house and pay her final living expenses. If anything left then let the heirs get it.

stuff like this drives me crazy

[kcjenkins]

I agree that it is not unreasonable for a person with an assert worth $300K to use that asset to pay their own way. But some good tax planning could have eased the pain, no doubt. Foe example, although her own assets should pay her way, if the family wanted to keep the home in the family, proper planning could have done that, where now the only option would be for them to pay for the house at the Which might have real timing problems.

Point is that now, let's say the house sells for $300K, and Mom lives two years at the $12K, then the family inherits the remainder. $276. Odds are, if they had put the house in a trust, paid her bills, and kept the house, they would have inherited more value.

[Joel]

Yesterday I ran into a situation with a Mother and two children. The Mother had a living trust when she passed away last April. In early May they got a tax id number for the trust. They sold mutual funds, annunities and stocks in the name of the trust during the Summer but used the Mother's social security number. Also cashed in the Mother's IRA in the name of the trust using mothers SS number. In August they went to cash in 40K of savings bonds (20K interest) and the bank said they needed an estate tax id number, so they got it.

Now we need to straighten it out.

My thinking is that the trust should never have received a tax id and that the estate was all that was needed.

The IRA distribution should have gone to the children unless the trust was listed as the bene.

Why didn't they call me about the tax consequences last May?

[Guest Taxed]

At the risk of sounding political and insensitive, I will say that the culture in America has been to hide assets and have the Govt.pay for eldercare! Just look at the multitude of lawyer ads on eldercare law. what do they say. Proper planning can preserve assets from being used to pay for eldercare. Someone has to pay, there is no free lunch, so let it be the Govt. aka US Taxpayers. I bet a lot of these same attorneys are Republicans who do not want socialised medicine or anything to do with having Govt. take care of its people, but they will sell their services to hide assets and have Govt pay for eldercare. What a bunch of hypocrites! If you really believe in individualism and personal responsibility then pay for your own care all the way to the grave!

[kcjenkins]

My thinking is that the trust should never have received a tax id and that the estate was all that was needed.

The IRA distribution should have gone to the children unless the trust was listed as the bene.

Why didn't they call me about the tax consequences last May?

You know they never do that. I think they think we have fun sorting all this out. And after all, both her hair dresser and her cooking group told them to do it that way!

[kcjenkins]

At the risk of sounding political and insensitive, I will say that the culture in America has been to hide assets and have the Govt.pay for eldercare! Just look at the multitude of lawyer ads on eldercare law. what do they say. Proper planning can preserve assets from being used to pay for eldercare. Someone has to pay, there is no free lunch, so let it be the Govt. aka US Taxpayers. I bet a lot of these same attorneys are Republicans who do not want socialised medicine or anything to do with having Govt. take care of its people, but they will sell their services to hide assets and have Govt pay for eldercare. What a bunch of hypocrites! If you really believe in individualism and personal responsibility then pay for your own care all the way to the grave!

All those attorneys, at least half of which are Democrats, btw, play that same game. And it may surprise you to know that I agree with you. I think the gov should only pay for those who TRULY need care and TRULY are unable to pay. I'd like to see the laws tightened up, but we all know that the rich lawyers in the gov don't want to close the holes they intend to use.

[joanmcq]

I always tell people, "do you want your mom in a Medicaid paid for institution? Do YOU want to spend your final years in a Medicaid paid for institution? Or do you want a nice place?" I have LTC insurance.

[Richcpaman]

Yesterday I ran into a situation with a Mother and two children. The Mother had a living trust when she passed away last April. In early May they got a tax id number for the trust. They sold mutual funds, annunities and stocks in the name of the trust during the Summer but used the Mother's social security number. Also cashed in the Mother's IRA in the name of the trust using mothers SS number. In August they went to cash in 40K of savings bonds (20K interest) and the bank said they needed an estate tax id number, so they got it.

Now we need to straighten it out.

My thinking is that the trust should never have received a tax id and that the estate was all that was needed.

The IRA distribution should have gone to the children unless the trust was listed as the bene.

Why didn't they call me about the tax consequences last May?

Joel:

Get your retainer up front. 1,000 to $1,500.

Extend the 1040 for Mom.

The 1041's are due 4-5 months from now.

Sort out all the income, and where it should be reported. Excel works great for this.

The IRA was distributed according to the IRA Contract between the mother and the IRA holder, and the will doesn't matter. The kids will get 1099-R's if they got the cash, if not, it went to her estate and is taxed on the K-1. And those tax $ are due in 2013..

Sounds like a tasty deal to me.

Rich

[Joel]

Rich,

The only problem is that when the IRS issued the tax id numbers they stated the end of the year was 12-31-12. Therefor the returns are due on 04-15-13!

[Richcpaman]

Joel:

The IRS may have issued the tax ID number to state a 12-31-2012 year end, but you get to file them, and note that the tax period started on the date of death. And then you have another 4-5 months, and the SS-4 was wrong.

Rich

[joanmcq]

Extensions all around.