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Hi-

Just looking for a little direction here...hoping I'm not venturing into illegal territory and I know the regulars here have sound advice.

Thinking about buying a condo to live in eventually (to be owned by my living trust, I am trustee) and I believe the current owner would be quite happy to rent it back from me at a near-market rate post-closing until she finds a new place and once I can get a jump on selling my current home. Problem is, I do not want to show any more income for 2014 as it would torpedo my healthcare planning via the ACA. I am already expecting 2014 income to be right up under a level that I do not want to cross.

Can we legally, buyer & seller, agree to a price in principal (let's pretend market price is $600k) and then adjust it downward by 6 months of rent (assume $3k per) while I then let her live there rent free through year end ($582k)? Is this running afoul of the authorities? Or is it just within the bounds of a lowish bid for the unit, accepted by the owner combined with a separate agreement between myself & current owner wrt $0 rent. I have every reason to believe she'd be a good tenant.

Or is there a way that I can set up some vehicle to own the condo which files its own taxes, receives rent but pays taxes & HOA fees, and keeps any rental income away from myself...at least until 2105, perhaps longer. I am clueless with rules of residential RE taxation & arms length transactions.

Thanks,
ET
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Since you're considering buying first, then selling your current place, presumably you have enough cash to do so.

Why not put the property under a contract to be sold at X date in the future?
You don't have to rent-back.
The seller has a guaranteed sale that they can plan on.
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Why not put the property under a contract to be sold at X date in the future?

Thanks.

I'm just kicking around ideas right now. I want to do a transaction that in form is appealing to the seller (all cash, rent back - her first choice) but I don't have full information on her yet. We just toured the place today w/ an agent and I'm trying to formulate an attractive bid. Your idea might work - I'll give it a try.

Other suggestions welcome.

et
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What you are contemplating is a short term rental that likely does not have a profit motive. That makes your tax reporting problematic. You'd report the rental income as other income (NOT on schedule E where rental real estate is usually reported), and any related expenses would be on schedule A. Since the ACA subsidy is based on AGI, the rental will increase your AGI even if you have enough expenses to offset the income.

Having said that, I like foo1bar's suggestion very much. And not just for the tax reasons. Once you buy the property, it's yours. If the former owners turned tenants don't take care of the place (and they no longer have any incentive to do so), whatever problems they cause become your problems. A contract to purchase, to be completed and closed in a few months would address that issue as well as your potential tax issue.

--Peter
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And not just for the tax reasons. Once you buy the property, it's yours.
I'd also add insurance to those reasons.
I'd call my insurance agent before making an offer that includes 6 months rent-back.
Because you aren't living in the house I expect that it won't be normal home insurance.

BTW - another place you can post this that might be able to provide useful feedback is the "buying or selling a home" board:
http://boards.fool.com/Messages.asp?mid=31279425&bid=100...
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Because you aren't living in the house I expect that it won't be normal home insurance

Landlord insurance is a common policy.
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Landlord insurance is a common policy.
It is common. But it isn't normal home insurance.

Just one of the complications:
Will there be a mortgage? Will the mortgage be owner-occupied? If so, landlord insurance would be a red-flag IMO that the mortgage application may have been made fraudulently. And normally the mortgage company does require that they be provided a copy of the insurance.

6 months rent-back just seems to me to be way more than what is normal.
And when it's outside of what's normal/customary, things are likely to become complicated - including making sure you can get insurance. You can even potentially have that your normal insurance company won't write a landlord policy right now.
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