I live in Washington state and my mother lives near my brother in California. I was considering purchasing a house with cash, for her to live in. The cost of the house would likely be around $600,000.

I understand if she lives there, without paying fair market rent, that’s considered a gift that I would have to report (assuming fair market rent exceeds 15,000/year).

I was wondering if that still applied if I gifted my mother a small percentage of the home ($15,000 or approximately 2.5% of the home) of the value; at the time it was purchased? Would that free her of responsibility of paying rent and free me of responsibility of reporting her rent-free living as a gift?

  • Why do you think you’re mother has an obligation to pay you rent?
    – quid
    Sep 13 at 1:59
  • It’s my understanding that if a relative is not paying rent, for a property I own, the US government treats it as a gift. If the fair market value of rent exceeds 15,000 per year then I’d have to report it. I’m wondering if she owns a portion of the residence, whether that would allow her to live there rent free and not having that treated as a gift. Sep 13 at 3:54
  • 3
    Why do you want to avoid reporting your gift?
    – DJohnM
    Sep 13 at 6:13
  • Can you please reference the IRS rule you are getting this from?
    – jwh20
    Sep 13 at 9:39
  • 1
    The real risk here in under-charging on rent for relatives is that you might lose a lot of tax deductions that you'd normally get for a rental property.
    – JohnFx
    Sep 13 at 14:04

Charge her rent of $1250/month, and then gift it to her. You’ve then covered your bases with the IRS.

  • 2
    You should explain why you think that letting someone live in the house at below-market rent (assuming $1250/month is below-market as OP says) isn't itself a gift. Compare this question where your answer seems to say the opposite.
    – nanoman
    Sep 14 at 9:27
  • I'd hate to try to explain this arrangement to the IRS if you are using this arrangement to get extra deductions as a business expense on the rental. This seems shady.
    – JohnFx
    Sep 14 at 22:41

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