Author Topic: Taxed vs untaxed rental benefit?  (Read 2144 times)

aspiring

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Taxed vs untaxed rental benefit?
« on: March 24, 2015, 12:14:53 PM »
Iím not sure if this is actually a real estate question, but it involves property so Iím posting here in hopes others might have advice.

My question is regarding how to divide tax vs. untaxed benefit in a jointly owned home. The facts: We co-own a 2 family property with my sister. We own 2/3, she owns 1/3 of the whole property.  We pay 2/3 of  all expenses, she pays 1/3. We live in one apartment. We rent the other unit. The apartment we live in has a market rent of $4000, but we only pay $2000 to live there. The rental apartment goes for $2000. My sister takes the $2000 of rental income, $1000 goes to her share PITI/etc, the other $1000 is income for her. We take $2000 as the unseen benefit of paying below market.

Sooo, everything is even-stephen, except that she has income to report and we do not. Of course, the $2000 we pay towards PITI is post-tax money. Also, she is out of state, so we do all the maintenance, sweat equity etc.

Is this fair? Is there another way we should be approaching this?

math-ya

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Re: Taxed vs untaxed rental benefit?
« Reply #1 on: March 25, 2015, 05:51:36 AM »
It's hard to tell if this is "fair" or not.  I guess it depends on how much maintenance and extra work you have to do, that she does not.
To make it more fair, you could charge yourself the going rate of the apartment, and also bill any maintenance work to the property.
But all in all I think you're way over complicating everything. You need to treat this house more like a business.

ShoulderThingThatGoesUp

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Re: Taxed vs untaxed rental benefit?
« Reply #2 on: March 25, 2015, 06:00:55 AM »
This seems way too complicated and frustrating. I get along well with my sisters and wouldn't want this arrangement. Why not buy the house from your sister and either do owner financing or free up her money to invest in another property?

math-ya

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Re: Taxed vs untaxed rental benefit?
« Reply #3 on: March 25, 2015, 08:06:19 AM »
from your post it sounds like you are having a lot of monthly payments where you are splitting up bills between you and your sister. lots of math and hassle. what you should do is treat the house like an entity totally separate from you and your sister.
make a bank account for the house, you can set it up as an llc and get a free business account. you pay your rent to this account, pay bills from it, everything.  you can get paid from this account as well, and your sister would like this system because she wouldnt have to write checks anymore. you can charge this account a management fee for your work and management of the building to reduce your tax burden.

math-ya

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Re: Taxed vs untaxed rental benefit?
« Reply #4 on: March 25, 2015, 09:53:42 AM »
I think you've made this situation a little more confusing than in has to be. You are talking about all this money going in and out of your account monthly. I'm saying keep that account separate from your and your sisters finances and then you and your sister can take the profits at the end of the month or whatever and divy them up how you see fit.
But if it's just confusing to me and you have your system down, I think I get what your saying, and it's probably about as fair as you're going to get

waltworks

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Re: Taxed vs untaxed rental benefit?
« Reply #5 on: March 25, 2015, 10:38:57 AM »
This is a giant disaster waiting to happen. What happens if rents go up a ton? Do you raise the rent on yourself? Do you pay your sister more? What if the house appreciates and one of you wants to sell but the other doesn't? Etc.

Seriously, sit down with your sis and come to an arrangement to buy her out. Or sell the house and split things up. The situation is a sibling relationship timebomb.

-W