DEAR BOB: I know a person who owns his home and owns another residence he rents to his daughter. But he insists the money he gets from his daughter is not rental income. He says it’s just enough to pay the mortgage so he doesn’t report it on his IRS tax return. But he claims the property taxes and mortgage interest on his personal tax return, Schedule A. Is this correct? –Jose C.
DEAR JOSE: No. Your friend should be reporting the rental income on Schedule E of his federal income tax return. This is the same place he can deduct the applicable mortgage interest, property taxes, insurance, repairs, other expenses and depreciation for the rental house.
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He probably thinks he is cheating the IRS. But he is really cheating himself because he isn’t claiming the maximum tax benefits from his rental property. If he has less than $100,000 annual adjusted gross income, he can deduct up to $25,000 tax loss from his rental property, thus reducing his income tax. He should consult his tax adviser.
DON’T SPEND INHERITANCE BEFORE RECEIVING IT
DEAR BOB: According to my parents’ will, each of us four kids will inherit one-fourth ownership of their primary residence. I am the only one who has ever expressed any interest in owning the house outright. As I am the executrix of their estate, what steps do I need to take to ensure everyone receives a fair price for their one-fourth share? –Joan R.
DEAR JOAN: Please don’t be so hasty. If both your parents are alive and well, many things can happen before they both die and you four siblings inherit the house. They can change their wills, or even write you out of the will because wills are revocable.
Or maybe they will sell the house, move to a grass shack in Tahiti, and spend your inheritances traveling around the world.
The best thing you can do now is make sure the house title is held in a revocable living trust so, after the last parent dies, that parent’s estate won’t have to go through probate court costs and delays. At that time, obtain a professional appraisal to establish the home’s stepped-up basis to market value.
The big living-trust benefit is the successor trustee (presumably you) can distribute the living-trust assets according to the terms of the living trust promptly after any estate debts are paid. Probate court proceedings usually take a minimum of six months, sometimes years.
A secondary living-trust advantage occurs if one spouse becomes incapacitated, such as by a severe stroke or Alzheimer’s disease. If the other spouse is still alive, he or she can then manage the living-trust assets, including selling them if necessary.
Or, if only one spouse is alive, then you as the successor trustee can make important living-trust decisions, such as selling the house to pay for a parent’s care. More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.
NO OBLIGATION TO PAINT NEIGHBOR’S SIDE OF THE FENCE
DEAR BOB: The condo building adjacent to ours has a concrete block wall on its property that faces our building. The adjacent condo owners recently had their side of the wall painted. But our side of the wall remains dark with mildew and age. We asked them to paint our side of the wall too. They refuse. Do we have any recourse? –Nancy S.
DEAR NANCY: No. There is no law of which I am aware that requires a property owner to paint the side of his/her wall that faces the neighbor’s property. If I were in your situation, I would go ahead and paint the ugly wall the color I prefer.
The new Robert Bruss special report, “The 10 Key Questions Smart Home Buyers Ask to Avoid Getting Ripped Off,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010, or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).