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I was formerly a resident of California (before 2019). I still have family there. Now I was considering purchasing a home in California, that my mother would live in. My mother is almost 70 and derives her income from a combination of work and Social Security (I’m not sure if she receives SSI and SSA).

I understand if I end up renting the home or eventually sell it, I will have to pay taxes on it, both in California and at the Federal level.

Questions.

  1. Are there any other tax implications of owning a home in California, despite being a nonresident. I’ve researched California’s definition of residency and I know it’s very odd. I’m pretty certain there is no way California could define me as a resident or even part year resident. While I make a few trips back each year, it’s never more than a few days at a time and would never total more than four weeks in a year.

  2. While I would like my mom to live in the home rent-free, it’s my understanding that could cause her to forgo some SSI benefits (https://www.ssa.gov/ssi/text-living-ussi.htm), but not SSA benefits. If she is receiving SSI, the max benefit she would lose is ~$264. Is my basic understanding of that correct? Like I said above, I actually don’t know if she’s receiving SSI. This is more of a hypothetical.

  3. Would there be any advantage to renting the property to her at the bare minimum rate? My understanding, if this was a rental property, I could write off improvements or repairs. Further, I believe if I have losses on the property, while it is a rental, I could have it offset the capital gains when I sell the property (if there is capital gains). Is my understanding correct?

I’m curious what other people may have done in similar situations? What’s the best way to purchase a home for an aging, low-income, parent?

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For the purposes of this answer let us assume that whatever is determined to be the best set of actions will make your relative happy.

You will have to understand their sources of income now and going forward. You also have to understand what means based assistance they are getting. You should sit down with somebody who can work though all the possibilities, so that the best course of action can be found. Understand what may happen if they get sick, and what will happen if they have to go into a nursing home.

Separately you will also have to see what it will cost you to implement this plan. The best plan for your relative may not be the cheapest plan for you.

Real estate rented to relatives becomes tricky. According to the IRS Topic No. 415 Renting Residential and Vacation Property:

A day of personal use of a dwelling unit is any day that the unit is used by:

-You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home and the other owner pays a fair rental price under a shared equity financing agreement

  • A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price
  • Anyone under an agreement that lets you use some other dwelling unit
  • Anyone at less than fair rental price

That would mean renting it a below market rent will turn the property into another personal residence for you, and not be considered a rental property.

Regarding Washington vs California. Make it clear to California that you don't live or work in the state. Make sure all the mail related to the house goes to Washington. This includes the property tax, the HOA bill, and any other bills you are covering. Make sure that your cars are registered in Washington, also your drivers license and voter registration should be with Washington.

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