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The last two replies on this thread indicate why we always want to consider multiple go-arounds. Clearly Phil and I had different ideas about who would hold the mortgage, and I think Phil was right and I was mistaken.

If Sister holds the mortgage, which we can assume is 100% of the purchase price, then no large sums of cash are exchanged. What I see are two important things: 1)title now rests with you; 2)property taxes become deductible. Again, I will make some numerical assumptions just pulled out of the air.

Let's suppose the fair market value of the home is $150,000 and that property taxes are $200 a month. Also suppose Sister's SS income is $1000 a month.

Then, Sister is left with $12,000 - $2400 = $9600 after taxes, if there is no transaction.

If she sells to you for $150,000 and takes back a mortgage for that amount, then her monthly payment of $1100 from you is income. But her SS income is not taxed, and so her AGI is $13,200, and her standard deduction and exemption are $5500 + $2800, so her taxable income is $4900 and tax $739. So now she has $11,261 after taxes.

Meanwhile, you have expenses of $200 a month taxes, plus interest and repairs. To make it simple for me, let's suppose repairs bring the interest + repairs up to 8% of $150,000. So your total expenses of being a landlord are $2400 + $12,000 = $14,400, which are balanced by rent of $1100 x 12 = $13,200. So you have a loss of ($1200) which may become ($4000) after folding in depreciation. (I'm too lazy to look up the real numbers since these numbers are all fake anyway.) If you are in the 28% bracket, this represents a tax savings of $1120 to you.

So, the major monetary implication seems to be that without the transaction, Sister has to eat the property taxes (or, perhaps, not eat because the taxes must be paid) since she doesn't make enough to itemize, while you can deduct them on Schedule E.

I do not minimize the title question and what sort of friction that might cause. Would your sister really want to give up title for what, according to this admittedly wrong calculation, is $150 a month? And face eviction if you turn out to be an ol' nasty? (Not, of course, that I'm saying you are.)
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