Linda and Harry Schwandt
Fairless Hills, Pa.
Our daughter, son-in-law and two grandchildren moved in. What about
About two years ago, Harry and Linda, their daughter, Amber, and
her husband, Luke, began tossing around the idea of moving in
together. At first, it was discussed "in a joking manner," Harry
says. But the more they talked about it, the more sense it made for
Harry, an insurance underwriter, wanted to cut his expenses so
that he can afford to retire within the next 15 to 18 months. Amber
and Luke wanted more space for Tyler, 8, and Angie, 3. They
considered a larger home but feared they wouldn't qualify for a low
mortgage rate. Luke is self-employed, and "banks are tough on
independent contractors," Harry says.
So Harry and Linda added a master bedroom, bath and sitting
room, and in May, the young family moved in. The couples are
splitting all expenses, including real estate taxes and the monthly
mortgage. The Schwandts are considering adding Amber and Luke to
the deed of the house. Come next April, though, they're not sure
how to report the new arrangement on their tax returns.
A legal obligation.
Unfortunately, Amber and Luke won't be able to deduct any mortgage
interest. They would have to be legally responsible for the
payments, says enrolled agent Linda Bleil, of Pittsburgh. Putting
Amber and Luke on the deed to the home won't create that
obligation. "Harry and Linda are the ones who signed the mortgage
note," Bleil says. "They're the only ones who promised the bank
they'll repay the loan."
However, all is not lost for Amber and Luke in terms of tax
savings. If their names go onto the deed, they'll be allowed to
deduct their part of the real estate taxes. First, though, Harry
and Linda should ask their lender whether the terms of their
mortgage will allow them to add their daughter and son-in-law to
Adding family members could also raise gift-tax issues. In 2012,
Harry and Linda could give Amber and Luke a total of $52,000 in
cash or other assets. But if half the value of the house exceeds
that amount, the excess would be a taxable gift. A gift-tax return
would have to be filed, but no tax would be due because current law
provides a credit to cover the first $5.12 million of taxable gifts
($10.24 million for married couples).
There is a way around the tax issues. Instead of paying half the
mortgage, Amber and Luke could pay for nondeductible expenses --
food, utilities, insurance and maintenance -- to even out the
bills. If that means they claim the standard deduction instead of
itemizing, that might be an additional benefit. The law forbids one
spouse from claiming the standard deduction if the other itemizes.
But with two couples living together, one can claim the standard
deduction and the other can itemize.
Taxes aside, everyone says the move is a success. Linda helps
with the grandchildren, and the extended family eats together
several times a week. The family has always been close -- Harry
plays golf and poker with his son-in-law -- and that makes all the
difference, Harry says.
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This article first appeared in Kiplinger's Personal Finance
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