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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Tax-Advantaged Housing for Mom Date: 12/16/1998 9:54 PM
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[[TMFTaxes, I'm just curious and I'm just thinking out loud and this does not apply in any way to
me, but could Cal give his mom $10,000, some of which she pays back to him as fair market rent?]]

Absolutely. Good Thinkin', JAB.

BUT...Cal would have to be careful not to convert gift funds (which are not deductible by him) into taxable income in the form of rental income. As long as the gift is made in good faith, and Mom uses the funds as she sees fit, with no strings attached, there would be NO problem.

[[This sounds fishy, but suppose there is a different scenario in which I have a tenant who is paying
me fair market rent, and then I decide she is my sweet patootie and give her $10,000? At the end
of the year the financials in the two cases are the same. (Sweet Patootie has to keep paying rent,
I'm not Santa Claus.)]]

Not fishy at all. As long as your sweetie is not OBLIGATED to use those gift funds to pay her rent, there is no problem. But again, you must be careful that you don't turn these gift funds into taxable income (in the form of rent income) and...in effect...pay taxes twice on the same $10k (once when you earned it, and again when you recycle it back into your income in the form of rental income).

But it is certainly both possible...and legal.

TMF Taxes
Roy
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