DEAR BOB: If I sign and record a quit claim deed to my adult son for rental property I own, can I still receive the income directly from the tenants? Or does the income then have to go to him and be transferred to me? I don’t want him to be responsible for the income tax – Val A.
DEAR VAL: If you transfer the rental property title to your son via a quit claim deed, the property becomes his and you no longer own or control it. He then must report the rental income on Schedule E of his federal income tax returns where he can also deduct the applicable expenses.
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You could manage the property for him, such as collecting the rents, but you no longer will be entitled to the income-tax deduction benefits because you no longer own the property. He, not you, then must report the rental income and deductions on his tax return since he owns the property.
I do not recommend your deeding the property to your son, even if you are in poor health.
As I often say in this column, it is usually better to inherit real estate than to receive it as a gift before death. Better yet, transfer the title into your living trust to avoid probate yet retain full control until you pass on.
If you gift the property to your son, he then takes over your probably low depreciated tax basis for the property. However, if he inherits the property after you pass on, he gets a new “stepped-up basis” of its market value on the date of your death. For full details, please consult your tax adviser.
WHAT CAN HOMEOWNER DO TO PREVENT NEIGHBOR’S TREE DAMAGE?
DEAR BOB: My neighbor has several large trees that overhang my garden. I am very worried that during a storm they will fall onto my home. What can I do to have them cut down, trimmed or inspected for safety? The neighbor’s house has been a rental for many years and is neglected – Roger B.
DEAR ROGER: Unless there is evidence the trees are diseased and likely to fall on your house, there isn’t anything you can do other than very politely ask your neighbor to please trim his trees to minimize the probability of damage to your home.
You might offer to pay the cost of trimming, if that will help.
If there is evidence of negligence or tree disease danger to your home, you might ask your attorney to write a polite but strong letter pointed out the dangerous condition (if there is one) such as leaning trees. Other than that, there isn’t much you can do until damage occurs.
PRIVATE MORTGAGE INSURANCE PROTECTS LENDER, NOT BORROWER
DEAR BOB: Why didn’t Congress vote to make PMI (private mortgage insurance) premiums tax deductible just like interest? I see the House of Representatives favored that change, but the Senate didn’t, so the bill was defeated. This seems like a “no brainer” because PMI is such a rip-off for borrowers who receive no protection although we pay the cost to protect the lenders in the rare event of a foreclosure loss. When I wrote my representative, he said he voted for PMI tax deductions but he blamed the senators – Dorothy R.
DEAR DOROTHY: You pretty well summarized the situation. The PMI industry has been lobbying Congress for years to make PMI premiums tax deductible for borrowers, just like mortgage interest is tax deductible. But the proposed change gets defeated every time. Sorry, I don’t have any easy solution.
The new Robert Bruss special report, “Everything Homeowners Need to Know About the New $250,000 and $500,000 Home Sale Tax Exemption Rules,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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