2nd house, for Univ. kids/students

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Question -
Does anyone know how much umbrella insurance is needed ?
Thanks
megabad
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Re: 2nd house, for Univ. kids/students

Post by megabad »

Mrxyz wrote: Thu Oct 29, 2020 11:03 pm Question -
Does anyone know how much umbrella insurance is needed ?
Thanks
This question is always impossible to answer. If it were me, I would probably be comfortable as you are (with the $5 million), but you might feel differently.
phxjcc
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Re: 2nd house, for Univ. kids/students

Post by phxjcc »

For insurance call these guys:

https://www.proper.insure/

[link formatted by admin LadyGeek]
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

phxjcc wrote: Thu Oct 29, 2020 11:15 pm For insurance call these guys:

https://www.proper.insure/

[link formatted by admin LadyGeek]
I will.
So I have never heard of this company.
Do I buy home owner's insurance and umbrella insurance from them OR is it only for business insurance OR am I confused?
Thanks
denovo
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Re: 2nd house, for Univ. kids/students

Post by denovo »

Mrxyz wrote: Thu Oct 29, 2020 10:33 pm Hi all,

Family is 2 streets down - which is great!
Do not know about WHATIF - yes I use turbo tax.
I did not know about depreciation and recapture.........need to read.....
Insurance - Will get home insurance and umbrella separate from my personal insurances which already has 5M umbrella.
Renter's insurance policy ?? - So the renters buy it? why?
Will read denovo's post.
Replacements will be screened and have to be approved by all remaining renters to prevent issues!
1. Have you been a landlord before?
2. What is the graduation rate at this school?
3. Is this the same state that you live in?
4. Do you have handyman in the vicinity you are familiar with?
5. What outstanding debt do you have outside of the mortgage on your own home?
6. Are you friends with the family of the tenants?
7. Do you max out your 401k/IRA?
"Don't trust everything you read on the Internet"- Abraham Lincoln
denovo
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Re: 2nd house, for Univ. kids/students

Post by denovo »

phxjcc wrote: Thu Oct 29, 2020 11:15 pm For insurance call these guys:

https://www.proper.insure/

[link formatted by admin LadyGeek]
This is not a short-term rental.
"Don't trust everything you read on the Internet"- Abraham Lincoln
Spirit Rider
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Re: 2nd house, for Univ. kids/students

Post by Spirit Rider »

Mrxyz wrote: Thu Oct 29, 2020 6:44 pm Utilities will be paid by the 3 tenants (the 4th is my kid who does not pay). There are 5 bedrooms but we at present, are not sure of the last tenant.
I think the utilities should be divided by the total number of roomates (including your child). It also would be a good idea for your child to pay their share with their own money. These are incremental and/or usage based. Your child having some skin in the game will be useful.

I also think having 5 roomates might be one too many. Don't let the availability of the extra bedroom necessarily drive your plan. Fraternity/Mob dynamics tend to be nonlinear.
random_walker_77
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Re: 2nd house, for Univ. kids/students

Post by random_walker_77 »

Mrxyz wrote: Thu Oct 29, 2020 10:33 pm Renter's insurance policy ?? - So the renters buy it? why?
Both of these articles make the case pretty clearly. But it boils down to limiting your risk of financial damage and/or litigation.

https://www.mysmartmove.com/SmartMove/b ... rance.page
https://www.statefarm.com/simple-insigh ... -insurance

I know a guy who accidentally started a fire in his dorm room (toaster oven, then walked away and got distracted). Imagine smoke and water damage to everyone else's property. If your tenants all carry insurance, then it's less likely someone will go after you. And even if you have to call on your homeowner's policy, you can go after the tenant's insurance for your deductible (and your insurance will subrogate to the responsible party and their insurance).
sabtastic
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Re: 2nd house, for Univ. kids/students

Post by sabtastic »

TheLaughingCow wrote: Sun Oct 18, 2020 1:52 am Don't do it OP
Don't do it OP
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

denovo wrote: Fri Oct 30, 2020 7:31 am
Mrxyz wrote: Thu Oct 29, 2020 10:33 pm Hi all,

Family is 2 streets down - which is great!
Do not know about WHATIF - yes I use turbo tax.
I did not know about depreciation and recapture.........need to read.....
Insurance - Will get home insurance and umbrella separate from my personal insurances which already has 5M umbrella.
Renter's insurance policy ?? - So the renters buy it? why?
Will read denovo's post.
Replacements will be screened and have to be approved by all remaining renters to prevent issues!
1. Have you been a landlord before? no
2. What is the graduation rate at this school? 90%
3. Is this the same state that you live in? yes
4. Do you have handyman in the vicinity you are familiar with? yes
5. What outstanding debt do you have outside of the mortgage on your own home? none, my NW is north of 4M
6. Are you friends with the family of the tenants? yes, all of them
7. Do you max out your 401k/IRA? yes
My answers above.
Thanks for your reply.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Spirit Rider wrote: Fri Oct 30, 2020 8:42 am
Mrxyz wrote: Thu Oct 29, 2020 6:44 pm Utilities will be paid by the 3 tenants (the 4th is my kid who does not pay). There are 5 bedrooms but we at present, are not sure of the last tenant.
I think the utilities should be divided by the total number of roomates (including your child). It also would be a good idea for your child to pay their share with their own money. These are incremental and/or usage based. Your child having some skin in the game will be useful.

I also think having 5 roomates might be one too many. Don't let the availability of the extra bedroom necessarily drive your plan. Fraternity/Mob dynamics tend to be nonlinear.
My mistake, my kid does pay for utilities - shared equally by all 4 of them. Yes, appreciate the "non-linear" aspect of group dynamics!
LittleMaggieMae
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Re: 2nd house, for Univ. kids/students

Post by LittleMaggieMae »

I'm stuggling with the "small" - but having 4 students living in it. Are they doubling up in bedrooms and sharing a bathroom?
Who is cleaning the bathroom(s)? And Kitchen?

I wouldn't do this. Unless you want to be there constantly unclogging drains, making sure the dryer vent is clean, fixing whatever they break, making sure the trash is in the correct bins and out on trash day, dealing with complaints from neighbors from noise/over crowding/too many cars, etc.

College students away from home for the first time AND who most likely have never done any household chores in their life are NOT good candidates for taking care of a house.

Have you toured any sort of apartments or houses that students rent??? There's a reason they are the equivalent of "slums" and overseen by "slum lords". Even if you have a property manager - don't expect much. (I know a group of guys who own a house that they rent to college kids. I assume it's a way to shelter some income - as it's a reliable money pit/loss each and every year. )

Personally, I'd let your college kids get some education from the School of Hard Knocks on their own and pay someone else to deal with it.
denovo
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Re: 2nd house, for Univ. kids/students

Post by denovo »

Mrxyz wrote: Fri Oct 30, 2020 11:58 am
denovo wrote: Fri Oct 30, 2020 7:31 am
Mrxyz wrote: Thu Oct 29, 2020 10:33 pm Hi all,

Family is 2 streets down - which is great!
Do not know about WHATIF - yes I use turbo tax.
I did not know about depreciation and recapture.........need to read.....
Insurance - Will get home insurance and umbrella separate from my personal insurances which already has 5M umbrella.
Renter's insurance policy ?? - So the renters buy it? why?
Will read denovo's post.
Replacements will be screened and have to be approved by all remaining renters to prevent issues!
1. Have you been a landlord before? no
2. What is the graduation rate at this school? 90%
3. Is this the same state that you live in? yes
4. Do you have handyman in the vicinity you are familiar with? yes
5. What outstanding debt do you have outside of the mortgage on your own home? none, my NW is north of 4M
6. Are you friends with the family of the tenants? yes, all of them
7. Do you max out your 401k/IRA? yes
My answers above.
Thanks for your reply.
Don't mix friends with business. It rarely turns out well. I guess you're worth 4MM so even if you end up having to pay rent for 3 years for one or more of the other students I guess you will be financially fine. But I would rec. against this since you have no prior landlording experience. Especially to college students.

Since I expect you're going to do it anyways, get landlord insurance. Landlord insurance is specific for homes that are rented out. Given your NW, I would also get umbrella insurance. Your current auto insurer or home insurer may be able to assist. You should specify that you also have one rental. Check the minimums for liability that the umbrella insurer requires. I would probably max out the underlying liability insurance.
"Don't trust everything you read on the Internet"- Abraham Lincoln
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

denovo wrote: Fri Oct 30, 2020 1:21 pm
Mrxyz wrote: Fri Oct 30, 2020 11:58 am
denovo wrote: Fri Oct 30, 2020 7:31 am
Mrxyz wrote: Thu Oct 29, 2020 10:33 pm Hi all,

Family is 2 streets down - which is great!
Do not know about WHATIF - yes I use turbo tax.
I did not know about depreciation and recapture.........need to read.....
Insurance - Will get home insurance and umbrella separate from my personal insurances which already has 5M umbrella.
Renter's insurance policy ?? - So the renters buy it? why?
Will read denovo's post.
Replacements will be screened and have to be approved by all remaining renters to prevent issues!
1. Have you been a landlord before? no
2. What is the graduation rate at this school? 90%
3. Is this the same state that you live in? yes
4. Do you have handyman in the vicinity you are familiar with? yes
5. What outstanding debt do you have outside of the mortgage on your own home? none, my NW is north of 4M
6. Are you friends with the family of the tenants? yes, all of them
7. Do you max out your 401k/IRA? yes
My answers above.
Thanks for your reply.
Don't mix friends with business. It rarely turns out well. I guess you're worth 4MM so even if you end up having to pay rent for 3 years for one or more of the other students I guess you will be financially fine. But I would rec. against this since you have no prior landlording experience. Especially to college students.

Since I expect you're going to do it anyways, get landlord insurance. Landlord insurance is specific for homes that are rented out. Given your NW, I would also get umbrella insurance. Your current auto insurer or home insurer may be able to assist. You should specify that you also have one rental. Check the minimums for liability that the umbrella insurer requires. I would probably max out the underlying liability insurance.
Thanks.

So to clarify, I "know" their parents but we are not friends - like meeting off and on, or any other interactions.
Is there a difference between landlord insurance and rental dwelling policy? State farm 'says' its the same.
I will get high liability for the home insurance to more than 2 M.
The minimum deductible is 1% of the home cost or around $2k- at least that is State Farm's policy.
I have a LLC made and will buy home under LLC name.
phxjcc
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Re: 2nd house, for Univ. kids/students

Post by phxjcc »

denovo wrote: Fri Oct 30, 2020 7:32 am
phxjcc wrote: Thu Oct 29, 2020 11:15 pm For insurance call these guys:

https://www.proper.insure/

[link formatted by admin LadyGeek]
This is not a short-term rental.
Sigh.
It is a multi line agency.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

phxjcc wrote: Fri Oct 30, 2020 11:32 pm
denovo wrote: Fri Oct 30, 2020 7:32 am
phxjcc wrote: Thu Oct 29, 2020 11:15 pm For insurance call these guys:

https://www.proper.insure/

[link formatted by admin LadyGeek]
This is not a short-term rental.
Sigh.
It is a multi line agency.
Thanks I will contact them on Monday.
Topic Author
Mrxyz
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Joined: Wed Feb 29, 2012 6:12 am

Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Question regarding my kid in the rental house;

Does he pay rent or not? because he has 529 money he can spend for college expense - say the rent is $400/month, then he pays rent to the LLC owned by me. That money gets taxed at my tax rate ( around 30%). So in short, I am getting my money back but after taxation.
Or am I thinking this wrong?
Thanks
srt7
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Re: 2nd house, for Univ. kids/students

Post by srt7 »

I have not read through all responses so perhaps this is a repeat question. Is it possible for your kid to play the property manager part? This would be an excellent learning opportunity for him/her while taking on some responsibility.
Spirit Rider
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Re: 2nd house, for Univ. kids/students

Post by Spirit Rider »

Mrxyz wrote: Sat Oct 31, 2020 1:08 am Question regarding my kid in the rental house;

Does he pay rent or not? because he has 529 money he can spend for college expense - say the rent is $400/month, then he pays rent to the LLC owned by me. That money gets taxed at my tax rate ( around 30%). So in short, I am getting my money back but after taxation.
Or am I thinking this wrong?
Thanks.
I believe he has to pay market value rent or it jeopardizes your ability to claim deductions. The BH landlords can chime in.

Are you sure you will have a net profit after deductions including depreciation?
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

srt7 wrote: Sat Oct 31, 2020 3:48 am I have not read through all responses so perhaps this is a repeat question. Is it possible for your kid to play the property manager part? This would be an excellent learning opportunity for him/her while taking on some responsibility.
Yes, he will be the property manager. I plan to have 'surprise' inspection with legally appropriate 24 hours notice to visit the house etc!
The question is should I pay him or not? As a LLC, if I pay someone then it gets a little complicated.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Spirit Rider wrote: Sat Oct 31, 2020 10:02 am
Mrxyz wrote: Sat Oct 31, 2020 1:08 am Question regarding my kid in the rental house;

Does he pay rent or not? because he has 529 money he can spend for college expense - say the rent is $400/month, then he pays rent to the LLC owned by me. That money gets taxed at my tax rate ( around 30%). So in short, I am getting my money back but after taxation.
Or am I thinking this wrong?
Thanks.
I believe he has to pay market value rent or it jeopardizes your ability to claim deductions. The BH landlords can chime in.

Are you sure you will have a net profit after deductions including depreciation?
I think I will come out ahead. However, more people tell me I will not make money (even), some say I will make some money and very few say that I will lose a lot of money.
I could be wrong but I think I will come out slightly ahead. Not more than what I would make by 'conservative' investing and also with more 'headaches', problems and issues!

I plan to certainly keep everyone updated as this thread for me can almost be a blog of sorts depending on how much goes wrong!!!
Mr. Rumples
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Re: 2nd house, for Univ. kids/students

Post by Mr. Rumples »

I suggest seeing an attorney. Why? First, you don't want to be faced with a discrimination suit if one of the kids leaves school but wants to remain. Or if they have a child and want to have the child there. In some states, evictions are easy, in others difficult. If a friend of your child wants to rent but isn't in school, what then? You can't discriminate base on status if they drop out. Are these things likely, maybe not, but they are surely possible and on Judge Judy they make good theater.

I also suggest checking the occupancy zoning for where the house is. The number of unrelated adults - anyone over 18 - might be limited. Also, on the internal locks. Where I live, deadbolts on interior doors are prohibited by code, one reason is to ensure houses are not turned into multiunit rentals. Some renters might not feel good about a regular inside door lock that can be picked with a gem clip.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Mr. Rumples wrote: Sat Oct 31, 2020 11:04 am I suggest seeing an attorney. Why? First, you don't want to be faced with a discrimination suit if one of the kids leaves school but wants to remain. Or if they have a child and want to have the child there. In some states, evictions are easy, in others difficult. If a friend of your child wants to rent but isn't in school, what then? You can't discriminate base on status if they drop out. Are these things likely, maybe not, but they are surely possible and on Judge Judy they make good theater.

I also suggest checking the occupancy zoning for where the house is. The number of unrelated adults - anyone over 18 - might be limited. Also, on the internal locks. Where I live, deadbolts on interior doors are prohibited by code, one reason is to ensure houses are not turned into multiunit rentals. Some renters might not feel good about a regular inside door lock that can be picked with a gem clip.
Great points!
So, if the kid leaves school and wants to keep renting, I would not have a problem with that. All kids friends are from out of town and I do not see any reason (currently) that they would want to stay. But that can change!
Occupancy zone - can be rented out to up to 5 tenants. Each bedroom has its own lockable door, no deadbolts. There is no neighborhood association and street parking is legal and free. Do have a large driveway also which can be used for parking.
rivendell
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Re: 2nd house, for Univ. kids/students

Post by rivendell »

Be certain to put language in your lease regarding pets. If you allow pets stipulate type and size and breed(s). I would also have a large deposit and extra monthly fee if allowed. Stipulate a total number of pets allowed in the dwelling as well.
Pets in the hands of college students are often destructive to a rental; personally I would not allow pets including fish in a large aquarium (leakage and mold considerations).
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

rivendell wrote: Sat Oct 31, 2020 1:01 pm Be certain to put language in your lease regarding pets. If you allow pets stipulate type and size and breed(s). I would also have a large deposit and extra monthly fee if allowed. Stipulate a total number of pets allowed in the dwelling as well.
Pets in the hands of college students are often destructive to a rental; personally I would not allow pets including fish in a large aquarium (leakage and mold considerations).
Agree !
No pets or water beds....
No renovations
No using spare bedrooms which are not rented out


Lots of online options to create a lease agreement - does anyone have any recommendations?
srt7
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Re: 2nd house, for Univ. kids/students

Post by srt7 »

Mrxyz wrote: Sat Oct 31, 2020 10:13 am
srt7 wrote: Sat Oct 31, 2020 3:48 am I have not read through all responses so perhaps this is a repeat question. Is it possible for your kid to play the property manager part? This would be an excellent learning opportunity for him/her while taking on some responsibility.
Yes, he will be the property manager. I plan to have 'surprise' inspection with legally appropriate 24 hours notice to visit the house etc!
The question is should I pay him or not? As a LLC, if I pay someone then it gets a little complicated.
Excellent! Can it not be a quid pro quo of waiving rent for property mgmt?
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

srt7 wrote: Sun Nov 01, 2020 5:07 pm
Mrxyz wrote: Sat Oct 31, 2020 10:13 am
srt7 wrote: Sat Oct 31, 2020 3:48 am I have not read through all responses so perhaps this is a repeat question. Is it possible for your kid to play the property manager part? This would be an excellent learning opportunity for him/her while taking on some responsibility.
Yes, he will be the property manager. I plan to have 'surprise' inspection with legally appropriate 24 hours notice to visit the house etc!
The question is should I pay him or not? As a LLC, if I pay someone then it gets a little complicated.
Excellent! Can it not be a quid pro quo of waiving rent for property mgmt?
Yes, and I plan for him to sign the 'details' of property mgmt which he has 'to do' and sign by email/text to me every x weekly.

Trash - put out trash q 2weekly for pickup
Lawn care
Snow care
Check for leaks in rain
Cover outside faucets for winter
etc
IMO
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Re: 2nd house, for Univ. kids/students

Post by IMO »

My parents did this, it all went fine for the 4 yrs of schooling.

The one thing I think you missed:
Then the market crashed, house value went way down (decades ago). No quick cash like they must have hoped.

On the positive, they held onto it long long term, and it is now doing great on appreciation. But that is long term.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

IMO wrote: Mon Nov 02, 2020 2:09 am My parents did this, it all went fine for the 4 yrs of schooling.

The one thing I think you missed:
Then the market crashed, house value went way down (decades ago). No quick cash like they must have hoped.

On the positive, they held onto it long long term, and it is now doing great on appreciation. But that is long term.
Yes, very good point!
Other than lost opportunity of putting the money in the market for 3 to 5 years, I also believe, I can keep holding on to the unused property after my kid leave as a 'longer term' option. Who know if my other kids go to the same college and can use the house also?.........
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Home insurance quote is;

Coverage Limit Premium

Dwelling 215,000 1011
extra dwelling 43,000 10
Personal property 10,750
Business liability(each occurrence) 5M 81
Business liability(annual aggregate) 10M
Loss of rents 1000
Plan rating 99

Total $1181

Any thoughts?
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

So no responses to the home insurance costs?

Update -
I am buying the house for $214k cash. Will be charging $450 per month to tenants who will pay for utilities. House inspection was fine - needs around $1400 repairs which can be done without much problem before everyone moves in.
Thanks
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cchrissyy
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Re: 2nd house, for Univ. kids/students

Post by cchrissyy »

The insurance costs more than I expect but maybe it's reasonable in your location, or, maybe it's because you put in so much liability coverage and a structure value higher than the price to buy the house.
Where I am, the lots are worth more than the houses so even when you cover generous reconstruction costs the structure lines don't come close to the purchase price.

Your contents coverage looks fine since you probably only own the appliances, and the loss of rent line looks very low but in your case this isn't a business so I guess that's ok.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Mrxyz wrote: Sat Oct 31, 2020 1:08 am Question regarding my kid in the rental house;

Does he pay rent or not? because he has 529 money he can spend for college expense - say the rent is $400/month, then he pays rent to the LLC owned by me. That money gets taxed at my tax rate ( around 30%). So in short, I am getting my money back but after taxation.
Or am I thinking this wrong?
Thanks
Hi-
Any response to my question will be appreciated.
Thanks
Spirit Rider
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Re: 2nd house, for Univ. kids/students

Post by Spirit Rider »

I already answered this.

First, are you sure the rental Schedule E entries will "show" a profit after depreciation if he pays rent. It doesn't matter if you actually have a positive cash flow. What matters is do you have a taxable "profit" after all revenue, expenses and depreciation.

Second, while mortgage interest and property taxes are always deductible. If you do not charge him fair market value (FMV) rent, you may not be able to deduct all the other expenses including depreciation. Because your son's tenancy would be considered "personal use".

Refer to Schedule E Instructions and IRS Publication 527 Residential Rental Property. The landlord's bible for all things taxable.
Topic Author
Mrxyz
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Re: 2nd house, for Univ. kids/students

Post by Mrxyz »

Spirit Rider wrote: Fri Nov 06, 2020 1:07 am I already answered this.

First, are you sure the rental Schedule E entries will "show" a profit after depreciation if he pays rent. It doesn't matter if you actually have a positive cash flow. What matters is do you have a taxable "profit" after all revenue, expenses and depreciation.

Second, while mortgage interest and property taxes are always deductible. If you do not charge him fair market value (FMV) rent, you may not be able to deduct all the other expenses including depreciation. Because your son's tenancy would be considered "personal use".

Refer to Schedule E Instructions and IRS Publication 527 Residential Rental Property. The landlord's bible for all things taxable.
Sorry, I did not read/understand your previous post.
So I will ask him to pay rent like the others, pay tax on the rental income, withdraw equivalent from his 529.
Thanks
Spirit Rider
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Re: 2nd house, for Univ. kids/students

Post by Spirit Rider »

Mrxyz wrote: Fri Nov 06, 2020 10:56 am So I will ask him to pay rent like the others, pay tax on the rental income, withdraw equivalent from his 529.
Did you do a pro forma Schedule E of all income and expenses (including depreciation) to see what actual taxable profit there will be. Cash flow alone is not a determination of what is taxable.
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