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Financial Planning / Tax Strategies
|Subject: Taxes and roommates||Date: 6/17/2013 8:23 AM|
|Author: 2gifts||Number: 118697 of 121482|
I think this is the best place to post this question, but there are several facets, so I'm not completely sure.
DS is now living in RI on a shoestring budget with a couple of roommates. I am originally from there, and essentially my entire family is down there, so he can't throw a rock and not hit a relative.
DH and I have been looking for a potential retirement home, and we are not really sure where we want to be, but RI is definitely a possibility. DH is also a general contractor, and work is feast and famine for him, so he's been looking around up here in our area in MA for a potential house to flip, or just for something that could be our retirement home when we downsize, which we hope to do within the next few years now that the kids are out of college.
Putting all that together, I've started to wonder if it makes sense for us to buy a cheap property in RI, perhaps something that needs a lot of work, fix it up, and have DS live there. He would pay us rent, but he could also get a couple of roommates that could carry the bulk of the expenses, and he could potentially end up living there for less than he is paying for rent now. We could find something closer to where he works, and that would also cut his commute a bit.
For the tax questions - I think that as long as I charge DS market rent, then this is just the same as any other rental property with the regular deductions and depreciation. But what about for DS? I'm sure he will have to claim the roommate rent as income, but how is having roommates different from being a landlord relative to taxes? He wouldn't have any depreciation, so I am thinking that it might all be pure income to him, as I also can't imagine that he'd have much in the way of expenses, since that should flow to us as owners and landlords.
Is this a reasonable way to accomplish this? I've also considered buying the house jointly with him where we'd put up the down payment and would be on the mortgage, as would he. If we did it that way, what changes in terms of him getting roommates? How would things like the depreciation work if he is living there and has roommates? And what about down the road when we would want to sell, or perhaps sell to him so that we'd get our down payment money back, but he'd end up with the property because he'd be the one paying the mortgage, taxes, expenses, etc.?
Other ideas to accomplish this? We have the money to be able to do this, but we do not plan to gift him the down payment money for the house. And he's got a twin sister, so at some point, we might do something similar for her.
We have multiple goals here - helping DS to get a good place to live that is affordable to him, getting our retirement home, and possibly picking up some investment property along the way. These are in rough priority order.
We have been landlords before for 16 years, so that part doesn't scare me at all, and it does seem like I can meet all our goals above without throwing any sort of monkey wrench into our longer-term plans.
I know this board can help with the tax questions, but I'd also like general comments on what I am thinking about, particularly around what I have missed.
DS does not know that we are thinking about this, so there are no expectations there.
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