Question: I do not have the credit yet to get a home loan. My parents want to > buy a house for me but I would be making the mortgage payments. The > house will be under their name as the owners. They already own their > own home. Will this be considered rental income for them? Is the > interest tax deductible for them or me? I will eventually get a loan > to pay off theirs. If they sell the house to me below market value, > will I be taxed on the gain? Is there anything else that we need to > consider before proceeding? Thanks…
Answer: I would ask a CPA about the tax questions. You might try asking the IRS, but you may get different answers each time you call. Call several times and ask the same questions.
(Personally, if I saw that you had the mortgage payment statements and canceled checks to your parents/mortgage company for the mortgage payment amounts, that would be proof enough for me that you paid the interest. But I am a nice guy, not an IRS auditor!)
Other than that, can your parents afford to make the mortgage payments should you become un-employed? If they can’t, then this may not be a good idea. You could both wind up in a real jam.
Also your parents may have trouble getting a loan for a “2nd home” in which they will not be living. May want to tell a real estate person what you want to do and ask if there will be trouble getting financing.
And last, these are your parents, but even so, you would be wise to have some sort of written agreement stating what you and they are agreeing to. All sorts of nasty situations can happen in the future. Best to protect your investment…
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