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Buying a property for child while in college and tax implications

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Replies to: Buying a property for child while in college and tax implications

  • wis75wis75 Registered User Posts: 13,892 Senior Member
    There are more important considerations than just the financial ones mentioned above. Does your child actively WANT to live in the place you propose buying? Do you want to be an OOS manager? Remember, there will be things needed in the middle of the night- who does that maintenance? Do not expect your student offspring to have the time, skills or desire to manage the condo. Interior issues are the responsibility of the owner, not the condo association.
  • HImomHImom Registered User Posts: 34,234 Senior Member
    What if your kids wants to live in a dorm, life in a sorority or frat house, or elsewhere? Transfer schools, do a term or year away? Also awkward for your student to have to collect rent from classmate(s).
  • partyof5partyof5 Registered User Posts: 2,674 Senior Member
    edited January 2018
    @HImom my child is currently living in the dorms and is ready to move off campus. She isn’t transferring as she is sophomore and highly doubt that she will be transferring. She would be living with a my friends daughter. We’ve been friends for over 30 years, so no discomfort paying collecting rent. At this point she is not joining a sorority and most black Greek orgs don’t have an official “house” so that won’t be an issue.

    @wis75 she couldn’t care less who owns the property. The last thing I’m worried about is something going wrong in the middle of the night. We are currently renting now and I’ve never had to call the landlord in the middle of the night. She will call me and we will deal with it. I also have several friends in the area who can assist if necessary. I also may get a property manager but I will cross that bridge at a later date.

    @sherpa I’m probably going to get the loan in my name and transfer to the LLC later in the interest of time.

    @twoinanddone I’m aware of the higher down payment. It’s normally 25%.
  • partyof5partyof5 Registered User Posts: 2,674 Senior Member
    @twoinanddone it just dawned on me that I don’t have to purchase this as an investor property since I am currently renting. We are looking to purchase again this summer. I will just purchase as a second home so the rates will be more favorable than purchasing as an investor.
  • momofthreeboysmomofthreeboys Registered User Posts: 16,676 Senior Member
    I would run the tax scenarios and figure out which will be more favorable as a second home or as a rental property. How your kids roommate handles payments could be structured in many different ways in either scenario.
  • partyof5partyof5 Registered User Posts: 2,674 Senior Member
    @momofthreeboys I meant for purposes of purchasing I can just say Im buying a home and get conventional financing. I can then make it a rental.
  • rosered55rosered55 Registered User Posts: 4,288 Senior Member
    @partyof5, might there be issues with the mortgage if the lender finds out the "home" is actually an investment property, to which different lending rules might apply?
  • partyof5partyof5 Registered User Posts: 2,674 Senior Member
    @rosered55 I suppose, but people have properties all the time that turn into rentals because they can’t sell them so I’m not really worried. If I approach it as a primary or secondary home the terms will be better. I eventually would like to live in the area so financing as a second Home wouldn’t be bad. Since I technically don’t have a primary home I’m not sure how the bank would classify.
  • lookingforwardlookingforward Registered User Posts: 32,379 Senior Member
    edited January 2018
    If "the "home is actually an investment property..." meaning not "owner occupied." In some areas, that also affects property taxes.

    This is a case where you'd probably benefit from speaking with RE attorney in the college area. (Including whether your child living there qualifies as "owner occupied.") And your CPA--and an insurance agent, re what's covered in different scenarios, costs and liabilities. There'll likely be various tradeoffs.

    Plus, many here will have their own take. Eg, if it were me, I might just buy it, if it's affordable, in good shape, less than dorm costs, and will appreciate/be sellable there, later. I wouldn't worry about how much "rent" any more than if a friend moved into my own home and shared costs.

    But I'm not lawyer, lol, and would be consulting one, if I didn't know.
  • momofthreeboysmomofthreeboys Registered User Posts: 16,676 Senior Member
    Easy enough to find out. In Michigan I can only designate one place as homestead for property tax purposes.
  • HImomHImom Registered User Posts: 34,234 Senior Member
    If she’s already a sophomore, she will only have 2 more years of school before she graduates. What then?
  • twoinanddonetwoinanddone Registered User Posts: 21,848 Senior Member
    I think your lender will notice if it will not be owner occupied. When you qualify, they'll wonder how it is going to be owner occupied if your jobs and thus income are not in the same area. Getting insurance on the property will require a statement that it will be owner occupied.

    But you can try it.
  • partyof5partyof5 Registered User Posts: 2,674 Senior Member
    @twoinanddone I don’t plan to lie and tell the lender I will live there. I only mentioned I don’t know If it’s technically classified as a second home since I don’t currently own a first home. Also, my job is not located where I live now because I work remotely so that could never be a prerequisite. It could be classified as a vacation home I suppose as I will stay there while I am in town.

    @HImom I mentioned earlier up thread I plan to keep the property. It’s really close to school and ultimately I would like to move there assuming my husband can find a job. I certainly don’t plan on living here during retirement. I need my dollars to stretch.
  • HImomHImom Registered User Posts: 34,234 Senior Member
    Well, if you plan to move and live there, then it makes more sense. Good luck with your plans. I hope things work out as you plan and expect.
  • sylvan8798sylvan8798 Registered User Posts: 6,751 Senior Member
    From the IRS Schedule E instructions:
    Renting out part of your home.
    If you rent out only part of your home or other property, deduct the part of your expenses that applies to the rented part.
    Maybe this would apply, since you are only renting out "part" of the apartment to the roommate. Regarding your other scenarios, it seems like it might depend on whether you have a gain or a loss.
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