I am moving into the city for hospital reasons and I'm asking my friend to move into my house while I'm gone and all I'm asking her is to pay me the amount of the mortgage, not one cent more. She'll be putting the money into my bank account and I will send it to the mortgage payment. Is that considered income? Do I need to report it?? I'm not making money off of the house, just asking someone to pay me the mortgage amount so I could pay it while they take care of my house.
2007-07-07 21:46:52 · 5 answers · asked by Just Me 2 in Business & Finance ➔ Taxes ➔ United States
How long a period are we talking about? If it is less than one year, this should have minimal impact on your taxes. You will receive rental income equal to the mortgage and report it as rent on Schedule E. If the mortgage payment is close to the fair rental value of your home, you can deduct your mortgage interest, real estate taxes, utilities, repairs, maintenance, insurance, etc. on Schedule E. You will not depreciate the house, so this will not impact the tax on the gain if you sell your house. Schedule E will generate a small loss for you and reduce your taxes.
If the mortgage is less than a fair rental value for your home, you can deduct your expenses up to the amount of your mortgage payment, break even, and owe no income tax on the payments you received.
Your out of pocket costs for lodging while away for medical treatment may be deductible in the amount of $50 a day, if not at the hospital, or for the full amount if at the hospital. Don't forget to also deduct medical mileage.
2007-07-08 04:15:53 · answer #1 · answered by ninasgramma 7 · 2⤊ 1⤋
Steve, above, is totally correct. You are renting out your home and must report the income on Schedule E. This isn't necessarily a problem though. In most cases you will actually show a net loss for tax purposes and this can be used to offset your other income up to certain limits.
Your expenses such as mortgage interest, property taxes, repairs & maintenance, utilities, insurance and depreciation are all used to offset the rental income. Normally only mortgage interest and property taxes are deductible on a personal residence but once you convert it to a rental all of the other items become legitimate deductions as well.
There are two possible issues that could get you into trouble. If you are renting it out for less than fair market value the deductions (other than mortgage interest and property taxes) may be disallowed. If your mortgage payments are higher than the typical rents for a similar property you'll be OK on that issue. If typical rents are substantially higher than your mortgage payments this could be an issue.
The other "gotcha" is the issue of depreciation. When you sell a property that was used as a rental you must pay capital gains taxes on the depreciation that was allowed or allowable while the property was a rental. This is true even if you are otherwise eligible to claim the exclusion of gain on the sale of a personal residence. The operative phrase is "allowed or allowable" depreciation. Whether you depreciate it or not, the law requires you to pay the tax on the allowable amount even if you didn't take the deduction.
2007-07-08 11:19:22 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
Hi, I dont know much about the United States financial matters but I think, to be safe, that your friend should pay directly to the mortgage lender as I believe that any incoming funds showing in your account on a regular basis would be seen as income regardless of what you are spending it on.
In NZ if someone is renting your home, even if the rent just covers the cost of the mortgage it is seen as income.
The IRS, like our IRD in NZ have one set of rules for all I would imagine.
The only other way to get around it is to deal in cash.
I wouldn't take the risk though, find out for sure.
Better to be safe than sorry and then you will not have to worry which will hinder your recovery process.
2007-07-08 04:57:36 · answer #3 · answered by Anonymous · 1⤊ 3⤋
The IRS will consider the payments as rental income. This income and related expenses will have to be reported on Schedule E.
2007-07-08 07:51:55 · answer #4 · answered by Steve 6 · 1⤊ 2⤋
hmm... i'm no lawyer, so i couldn't say myself.. i'd say it's probably safest to talk to the bank that gave you the mortgage, or someone similar, and see what they have to say. if they don't know, call the IRS and ask them..
hope that helps
2007-07-08 04:50:59 · answer #5 · answered by visionary 4 · 0⤊ 4⤋