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If I buy a home for my special needs sister to live in free of charge, is this a gift for taxation purposes since $0 is under fair market value?

I assume if it is considered a gift, since the amount given to her is just on the value as if it was a rental and not on: taxes, interest, and repairs. Is that right?

  • In the US.
  • I won't live there.
  • I don't own a home of my own.
  • She will not be on the deed.
  • I will pay all of the taxes.
  • She is not considered my dependent.
  • Why did you ask the same question twice? money.stackexchange.com/questions/88593/… – RonJohn Dec 23 '17 at 9:48
  • Sorry, I legitimately considered it two questions. One about deductions I could take, and another about taxes I could owe. – Adam Meyer Dec 23 '17 at 15:49
  • Are you married? Is your sister married? Will she pay for repairs/maintenance, or anything else that might not typically be paid for by tenant? – Hart CO Dec 23 '17 at 16:05
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(What you're doing is very nice.)

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes#5

For 2018, the annual exclusion is $15,000.

If the fair market value of rent (since renters don't pay property taxes, repair costs, etc... just rent) is less than $15000/12 = $1250/month then it falls under the annual exclusion. If FMV rent is over $1250/month, you'll have to -- I think -- file form 709 https://www.irs.gov/pub/irs-pdf/i709.pdf and pay taxes on anything over $15K (or deduct it from your -- as of 2017 -- $5MM lifetime estate exclusion).

(EDIT: remember that you can't deduct mortgage interest since it's not your primary dwelling.)

(EDIT 2: I'd strongly recommend you look at how to turn the rent gift into a charitable donation. It might not be possible, but certainly worth a look.)

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    I'm curious to know how this would be regulated. If his sister just lives there and pays nothing and the OP declares nothing, then how would the irs know otherwise? I'm not saying its a good idea/legal, just curious. – stanri Dec 23 '17 at 15:52
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    @stanri how would the IRS know whether my father just wrote me a check for $50K? They wouldn't, until/unless they audited him. Thus, the IRS relies on honesty. – RonJohn Dec 23 '17 at 16:02
  • Why the down-vote? – RonJohn Dec 23 '17 at 16:02
  • the IRS does know about a check for $50k (in fact, every transaction, regardless of value) is tracked. That is the beauty of this situation. There is no transaction to track. Sister lives in house; no money changes hand, no contracts. No paper trail. – rocketman Dec 24 '17 at 1:53
  • @rocketman "the IRS does know about a check for $50k" Citation? – RonJohn Dec 24 '17 at 3:11

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