Oceanside, CA asked in Real Estate Law, Tax Law, Estate Planning and Landlord - Tenant for California

Q: May my father legally declare on taxes rental income from renting out rooms in his house, if he transfers house to me?

My widowed elderly father and I live together in his house. He isn't doing well healthwise. Without going into detail, he will be seeing a lawyer to transfer the house to me. Ownership will go from 100% in his name to 100% in my name.

After the transfer, I will be in the unusual situation where I am the owner, and he will be the sole name on the loan.

We both agree we need to rent out 2 rooms.

-Rent checks will be made out to him. He will pay the mortgage (which is in his name) with them and keep the rest.

-Utilities are in his name. He will collect the renters’ portions, and pay these bills.

Unfortunately, if I am required to declare this income on my own taxes, it will be very problematic (affecting my CoveredCA insurance, among other things).

My question is, may my father declare this income on his taxes? Or am I required by law to declare it myself? Again - the renters will pay him only, and he will deposit the money into his account to keep and to pay the mortgage.

2 Lawyer Answers
Maurice Mandel II
Maurice Mandel II
Answered
  • Landlord Tenant Lawyer
  • Newport Beach, CA
  • Licensed in California

A: You are definitely jumping the gun with this transfer which will result in potential re-assessment, increased property taxes and potential capital gains taxes to your father. Additionally there is the loan. The lender may call the loan balance if your father transfers the property out of his name. When you consult with the attorney you need to evaluate what a direct transfer to you would mean, vs. a transfer to the two of you as joint tenants with right of survivorship, and whether that kind of transfer would have any tax or reassessment impacts. The real estate attorney will be able to advise you better.

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James Edward Berge , Yelena Gurevich and Steven J. Fromm agree with this answer

Steven J. Fromm
Steven J. Fromm
Answered
  • Estate Planning Lawyer
  • Philadelphia, PA

A: If you own the property the rental income is your income. If you decide to pay this income to your dad that is a gift to him. You must pay report the rental income on your tax return. You will also lose the step up in basis tax advantage if you transfer this property from dad to you while he is alive. You should talk with a tax/estates attorney before you do anything.

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