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Be Your Parents Landlord

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Sandy Botkin

Co-founder at Taxbot
Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).
Sandy Botkin
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Create a cool tax break: Buy parents home and rent it back to them

Say your aging parents live in a home that has appreciated in value, but they’re no longer reaping any of the home ownership tax break during their retirement years. Sound familiar?

Sandy’s hot tip: With one stroke of the pen, both you and your parents can win: they would get instant access to their home equity without moving, and you would pick up some generous tax deductions. How? Buy the parents house and then rent it back to them– at within 80% of going rate.

Thus, if you can’t deduct your mortgage interest as a result of the new tax law or don’t have a mortgage, you or your parents don’t have any home owner deductions that they can write off. With the sale leaseback:

  • you put cash into the pockets of your parents without them having to dip into a home equity loan, and
  • it allows them to put their money into safer investments than the real estate market

Key: The key is to transfer the home to the kids at a fair price in order to avoid any gift tax problem. Subsequently, both sides should enter into a lease at fair rental value, although the Tax Court does allow up to a 20% discount in order to get a reputable and reliable tenant.

Once you own your parents home, you’re entitled to reap the tax benefits of owning rental property. This includes:

  • taking write offs for repairs, operating expenses such as utilities and insurance and supplies, and
  • you can take depreciation deductions on the home.

Extra tip: you may be able to visit your “rental property” once a year as a deductible care taking expense.

Once your parents move out, you can move into it and make it your principal residence and avoid another $250,000 or $500,000 worth of capital gains, a true tax bonanza!

For more depth on this, go to either Taxbot University or my latest book, “Lower Your Taxes: Big Time” ( 2019-2020 edition)


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Sandy Botkin

Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).

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