'Buying' a house for mom

addictedtorosesDecember 8, 2008

My mother recently lost her husband, and subsiquently had to file Chapter 7 and give up her house, and start life over at 52. I convinced her to move from an expensive area in rural IN to an apartment by me in small-town Texas. She is currently in the hospital due to the stress of this situation complicated by a lifelong chronic condition (or rather, the stress complicated her condition and brought on an attack. We thought she was going to die for a minute there) I am trying to make her life as stress free as possible. I'm keeping her dog because she can't have it in the apartment, but it doesn't get along with my dog real well and Mom wants to look at getting a house here after her 6-month lease is up. Rent here is very expensive but buying a house is relatively cheap (go figure). Most people that plan to live here for at least five years buy instead of rent. The mortgage broker said she can't work with Mom for a house for two to three years after the bankruptcy is final. She had excellent credit before all this madness, and is trying to rebuild it even now. In three years she will have good credit again, but I don't think I can keep her doggie that long, and she can't give up this little rescued pooch, it would brake her heart. The mortgage lady said she could work with my credit, and suggested I buy a house as an investment and "rent" it to my mother, and let her buy it from me in three years. I do not have a problem with this as long as the payments are low enough for my husband and I to afford if something happens to Mom and she can't pay anymore.

But my question is, how does this work from the taxes standpoint? Because we have minor children, we still get some of the money we pay in back at tax time. Would Mom's "rent" count as income and put us in a higher tax bracket even though it's not really our house?

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no. not if you rented it to her at cost. in fact you could lower your taxes due to depreciation.

    Bookmark   December 8, 2008 at 9:01PM
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I would tend to agree, because basically I did a similar thing once, but I'd run it past an accountant first so you'll know all the ramifications as far as the best way to do it. It could end up being a win/win situation, or not. If I got the go-ahead from that, I'd feel really comfortable doing it.

It's the same thing here. Mortgages are literally cheaper than rent.

    Bookmark   December 8, 2008 at 9:11PM
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Sounds like the 2 of you are close and it's probably the only way I'd do something like that.

Other things to think of, what if something breaks Who fixes it?

Will she be responsible for the upkeep or will you?

Can you trust she'll take care of the house while it's in your name?

Things happen in families all of the time and you probably don't want to even think about worst case scenarios but should. What if her health goes even more and you have to put her back in a care canter?

Sorry that she's had to go through all of this. Hopefully things will start looking up.

    Bookmark   December 9, 2008 at 10:44AM
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I would look for low cost housing, senior housing or asst living based on her income. I don't think you should buy a house and let her rent etc. You have to declare the rent, and you really need to talk to your tax person. If you sell it you might have to pay a capital gains tax.

    Bookmark   December 9, 2008 at 11:11PM
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Her mother is only fifty two, not exactly a candidate for senior housing. Capital gains are not going to be an issue unless the poster is setting out to make PROFIT off her mother. It's about helping a parent who would probably do the very same thing for her child if the situation were reversed. It's about making her as happy as possible and her life as normal as possible, because it is within your power to do so. It's OK to CYA to make sure you don't get burnt, because it can happen in family situations, but if you can't make an exception for a parent in fiscal matters, you can't expect to be treated any differently by your own children when/if the time comes.

    Bookmark   December 10, 2008 at 8:03AM
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Thank you all for your responses, especially the ones that answered my question about the taxes and Calliope's post for clarifying my point at a time when I couldn't get on the computer and do so for myself.

    Bookmark   December 16, 2008 at 7:41AM
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