GMAC Real Estate Your Children, Your Second Home Landlord
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Your Children, Your Second Home Landlord

Takeaways

  • If your children take over a one-time second home and you move in, be aware of all the implications.
  • Done correctly, this option takes the property off your taxable estate.
  • If you are paying rent, make sure it’s at market level.

Did you know?

  • If handled incorrectly the IRS may argue you never relinquished "possession and enjoyment" of the property and it will remain a part of your taxable estate.
Find the perfect spot for your retirement. One way to use your second home for your retirement home, but take the property tax burden off your hand, is to either sell or give the home to your kids and let them become your landlord. To make sure the value of the retirement second home isn't part of your taxable estate, you need to pay market level rent to your kids.

Two things are vital in this type of transaction – if the second home is sold it must be at fair market value and the rent you pay your kids must also be at market level. If you continue to live in your previous second home without paying rent, or paying a nominal amount, the IRS will argue you never relinquished "possession and enjoyment" of your real estate and the full value of the home will become a part of your taxable estate.

Other Options

Renting a home you previously owned from your kids may seem like a win-win for everyone, but the entire deal is a type that really gets on the IRS radar screen. If the second home is sold to your kids you might be able to keep the home off of your taxable estate. If the home is gifted, even if you diligently pay a monthly fair market rental, the IRS will likely declare the home belongs as part of your taxable estate.

Two better options include a qualified personal residence trust, and simply doing nothing and bequeath the second home to your kids in your will. A QPRT legally takes the second home off your taxable estate and provides a provision for you to remain in the home for a designated period of time. Simply keeping the second home in your name and willing it to your kids will remain estate tax free as long as your estate is valued below the estate tax exemption.

Search for Second Homes for Sale

To search for a selection of second homes for sale, please visit lifestylehomesearch.com, or visit the website of a GMAC Real Estate Office that serves the area where you'd like to buy a second home. To learn more about buying Second Homes or Vacation Homes, explore the rest of this section, or contact a GMAC Real Estate Agent.