I posted this in another forum, and someone suggested I post here for better advice.
About 10 years ago, my parents bought a house thinking they could afford it, but after my dad lost his job, I stepped in and helped pay the mortgage. They’ve been able to cover about 1/3 of it with their social security, and I’ve been paying the rest for the past 8 years.
Now they’re in their 70s and need help, so we’ve decided they’ll move in with me. They’ve already said the house feels like mine since I’ve been paying for it, and they want me to take it over officially. The issue is they don’t want to report rental income because it might mess with their social security benefits. Instead, I’ll rent it out and report the income under my name.
So, how can I take over the house legally and financially? I’ve heard about creating an LLC or a trust, but I don’t really know how that works. Should I speak to a lawyer? If yes, what type of lawyer should I contact?
Kirby said:
They’re in their 70s, so even if they earn a lot, their social security won’t be taken away. They may have to pay some tax on it, but that’s about it.
Exactly. The rent might make their social security taxable, but it won’t be taken away. Plus, with things like mortgage interest, property taxes, and depreciation, they may not have much taxable income left anyway.
@Oli
It’s kind of wild how many people don’t know basic stuff about taxes and money. They hear things from others and assume it’s true without checking.
Kirby said: @Oli
It’s kind of wild how many people don’t know basic stuff about taxes and money. They hear things from others and assume it’s true without checking.
Yep, and it’s sad because people end up making costly mistakes. Whenever you’re dealing with big amounts of money, it’s smart to talk to a CPA or tax professional. I once knew someone who got bad advice about an IRA withdrawal, and it ended up costing them $60k in taxes.
Kirby said: @Oli
It’s kind of wild how many people don’t know basic stuff about taxes and money. They hear things from others and assume it’s true without checking.
That’s exactly why I posted here. I’ve heard all sorts of conflicting advice, and I didn’t know what to believe.
Kirby said:
They’re in their 70s, so even if they earn a lot, their social security won’t be taken away. They may have to pay some tax on it, but that’s about it.
Yeah, but from what I understand, if they report the rent as income, it’ll make their social security taxable. We’re trying to avoid that if possible.
Honestly, it’s better to wait and inherit the house when your parents pass. If you take it over now, your tax basis will be whatever they paid for it. But if you inherit it, the value resets to what it’s worth at the time they pass, which could save you a lot on capital gains taxes when you sell it.
For example, if they bought it for $600k and you sell it later for $1M, you’d have to pay taxes on the $400k gain. But if you inherit it and it’s worth $1M at that time, you wouldn’t owe any capital gains tax.
@Quinlan
Neither state has an inheritance tax. Oregon does have an estate tax, but depending on the value of the house, it might still be better to inherit it. You should talk to a CPA who’s familiar with Oregon estate taxes to figure out the best approach.
Rory said:
Did you loan them the money, or were those gifts?
Also, forget about the idea of an LLC controlling a trust. That’s not how it works.
Has the house gone up in value a lot?
Thanks for clarifying that! I guess it’s considered gifts—I just have a monthly transfer set up from my account to theirs. And yeah, the house has gone up in value by about $200k.
You might want to hold off on taking over the house. If you wait and inherit it, the value resets, which helps with taxes. You could also look into having them set up a trust, where the trust owns the house and rents it out, and you manage it for a fee.