Taxes on building owner resides in question
Let's say someone owns a 6 unit building outright. They live in one unit, have their parents live rent-free in the second unit, a sibling live rent-free in the third unit, and rent the remaining 3 units at a rate of $1,000 per month, how is the gross income taxed? (ie: would it be $36k per year, $72k per year, or something completely different?)
[{"id": "eu5ewab", "text": "Just my two cents but I think it\u2019s 36,000 in revenue. Think you\u2019re technically supposed to \u201cgift\u201d the others. But it wouldn\u2019t be above the $14-15K gift limit so you wouldn\u2019t have to file a gift return. Your deductions is where it gets tricky but I believe you would have to allocate expenses based on square footage.", "replies": [], "depth": 1}, {"id": "eu5f83q", "text": "I mean, the first step would be to deduct the operating expenses...", "replies": [{"id": "eu5fow3", "text": "That's what I'm no sure about. If I deduct operating expenses and it comes in at a loss, can I claim it at a loss?", "replies": [{"id": "eu5k2uj", "text": "Fuck yes you can. And if its a passive activity loss, you can roll it forward.\nDo you have an accountant? It kind of sounds like you need to hire an accountant.", "replies": [{"id": "eu5nc27", "text": "I'm actually looking into buying my first building, and kind of just wanted to get my ducks in a row before I do so. So, if it operates at a loss, I can claim it even if I am not including \"potential rent\" from my unit, my parents' unit, or sibling's unit, or do I have to factor that in?", "replies": [{"id": "eu5pz54", "text": "Let's take a step back. Are you closing all cash? Do you, your parents, and your sibling live there now?", "replies": [{"id": "eu5qbps", "text": "I'd be closing all cash(I know people on here will hate that). Right now, there are renters who are there month-to-month. My parents live with me now, sister lives in an apartment. I would be buying this, and having them live with me rent-free, so there is one unit occupied by my family, one by my parents, and one by my sister. There would be 3 left that I would rent out to tenants.", "replies": [{"id": "eu5r7ox", "text": "Ok got it. Then all you do is take the income and subtract the expenses (I'm presuming you're putting this in an LLC). You don't have to count the free units. You're probably going to lose a pretty substantial chunk of change in the LLC itself, but if its saving your family in housing, its probably a net net for you all. You also have a great upside story to sell to the next buyer.\n\nYou'll have to close all cash. If you lease out 1/2 of the property rent free, any lender worth their salt will put you in default on that loan immediately. \nAlso, put your family on a damn lease. I don't care if they're not paying rent. They HAVE to have a lease. Please trust me here, I've seen shit like this go sideways much more often than it goes well.", "replies": [{"id": "eu5rxns", "text": "Thank you very much for the information!", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "eu6fr27", "text": "Running a loss is one of the best things about RE, we run a paper loss (depreciation) on almost all of our properties even though they all cash flow.", "replies": [], "depth": 1}]