Not sure what to do

[tinabuggy]

 have been reading this form for a little while. I came over from ERE. I don't understand everything that is talked about on this forum but I keep reading to learn more.

Here is my question. We have put in an offer on a short sale house. My daughter will be renting from us so we can take advantage of the tax exemptions for rental property. We will not be making any profit off of it.

We have the $40,000 to pay cash for it. Or should we finance it (closing cost maybe quite a bit) or possible do an equity line on it after buying it? Can you deduct HELOC on your taxes also?
Eventually we will sell her the house but I want to take advantage of any exemptions that we can since we are not making money on this. Just trying to help my daughter out.

Thanks
Tinabuggy

[Chris]

You can deduct the interest on your home equity credit line on your primary residence, which is what I think you're asking about.

What you should do depends on the HELOC interest rate and your expected rate of return on the invested cash.  You won't be making money simply by deducting your HELOC interest; you need to be doing something with the cash you didn't use to purchase the property.

[tinabuggy]

This would not be our primary residence. We would be the landlord but for my daughter who would be renting it from us. I think this is the best way to go since I think we can write off more tax exemptions.

Am I assuming wrong or should we put it in her name? I don't think she will get as many tax breaks as we would being the landlord.

Hope I haven't confused you too much.

[salmp01]

If you rent to your daughter and you want to be able to write off the expenses make sure you charge her fair market rent.  Check out IRS publication 527 for more details. 

If you charge fair market rent and you take a HELOC out on the rental property you should be able to deduct the interest.   You’ll also be able to depreciate the house but keep in mind that you’ll need to recapture the depreciation when you sell. 

I’m not an accountant so please verify with one!