Posted by Bill Jacobsen on March 14, 2007 at 02:23:34:
I am not a tax accountant but I thought the person taking the deduction had to be legally responsible for the debt and be on title for the real estate. Also, it sounds like the person is just gifting you $500 per month which is not tax deductable.
If I am wrong, I apologize.
Bill
Tax Issue - Posted by Randy
Posted by Randy on March 13, 2007 at 22:01:41:
Heres the senario.
I own a condo that right now has no equity in it due to market conditions (New Jersey). It is vacant and killing me, so i have had to come up with creative solutions. My monthly payments are just about 2,000 per month and 1,400 of it is interest payments. Taxes are 3,600 per year. If i lease option it out, my income will only be 1,500 per month, leaving me with a negative cash flow of 500.
I have a partner lined up who is willing to come out of pocket each month for the 500 short-fall in return for taking advantage of the morgage interest payment write-offs. I know as long as i dont take the write-off too, put it in writing, that she will be able to take the write-off on her taxes, and i will be left with taking the 3,600 tax write-off
I thought that the 500 per month could be written off as a loss for her, and then she could get the 16,800 interest write-off on top of that. However, Patricia said that the IRS may look at that as double-dipping and that if the partner comes out of pocket 500 each month and takes the 1400 write-off, its like they are paying 500 for 1,400 write-off which equates to a 900 write off.
Does it matter if the partner does or does not have a share in the equity at the time of closing, if since on a lease option, i do not know if the sale will happen in 1,2, or 3 years.
Does there have to be a limited partnership agreement or a joint venture agreement? Is there a way to structue this deal so that the partner can take the 500 each month AND the 1,400 i give them?
The partners incentive to give the 500 each month is only to get tax write-offs. should i opffer them the tax write-offs as well if it is only a 900 write off?
Your reply… - Posted by Natalie-VA
Posted by Natalie-VA on March 14, 2007 at 18:08:54:
You replied:
So, if she’s in the 28% tax bracket, she’ll spend $6000 per year to save $5712 per year if I’m figuring this correctly.
–Natalie
Re: Tax Issue - Posted by Natalie-VA
Posted by Natalie-VA on March 14, 2007 at 13:17:46:
Randy,
I can’t answer your technical questions, but I’m trying to figure out what your partner is trying to accomplish.
Are you saying the you would pay $900 of the interest each month, and she would pay the other $500? Then, you want to let her take the interest deduction for the entire amount of $1400 per month? Why would she do this? If she’s in the 28% federal tax bracket, she might be spending $500 per month to save $392 in taxes. I don’t get it. Am I missing something?
–Natalie