posted by admin on May 26
my wifes parents are claiming bankruptcy (business closed) and are leaving their house. we would like to buy a housethey could stay in, near to us (within 5 miles). Some lenders require more (down payment/higher rate) because this is an “investment property” but i have been told that they are family and this could be my second home (lower down/lower rate). my attorney states that we should have a lease, and would pay taxes on a fair market rent, but we dont plan on charging them. Will I have to pay taxes on a non-existent income? can I still get the tax deductions for mortgage interest and city taxes I pay? can they homestead the property? I’m lost. any knowledgeable direction is greatly appreciated. Basically, can I buy a second home for myself and let my in-laws stay for free? Will I have claim this as income producing (even though it’s not)? Are tax advantages better one way or another?
May 26th, 2009 at 6:42 pm
Dude you have an attorney and not a accountant? Your questions are all valid, for a accountant. The laws change state to state. A good loan officer will know the answers and they can direct you towards the best loan for your situation.
If you sign your in laws to a lease to show additional income for you, the bank will want a rental history or in your case mortgage history and that wont look good. Yes you can write off the interest on your loan, no they can not homestead the property unless they are on title. You see what I mean you need a good LO.
May 26th, 2009 at 6:42 pm
The purchase would be considered an investment property if you bought it by yourself (you and the wife), but not if you merely cosigned the loan for the in-laws which would also over come the higher insurance costs of non-owner occupied property. If you bought it on your own and received rent from your in-laws you would have to pay taxes on it, but you would still be able to write off the interest on the loan regardless of whether or not any money was received or you were only a co-borrower/owner.