Rental in Germany - and more

[Margaret CPA in OH]

This is complicated so please bear with me.

Couple from Germany (she a professor, he a house husband now) lived in KY, she worked in OH.  Last year they bought a12 room house in OH needing major rehabbing done by husband.  Two rooms were available in October and a third in November so another German professor moved in although house was not yet really ready.  She needed a new place to live.  Couple says KY house rented as of Jan. 1, 2018 to students.  So they apparently became OH residents at that time (haven't changed driver's licenses, etc. yet).  House in KY was bought with cash and husband rehabbed so basis is really low.  Tenant of rooms in the OH house has been paying (by way of debt forgiveness of loan from couple) $650 per month.  The value of the property changes almost monthly due to ongoing rehab.  Getting a value as of October is a challenge at the least.

Second professor (tenant of rooms in OH house) has a condo in Germany rented now by third professor (from Australia, but that's another story) waiting for her visa to be renewed.  Condo owner charges tenant moving amount monthly depending on utilities and other factors.  Also, the condo is legally owned by parents but she pays the mortgage (private loan from rich Swiss uncle) and all the bills.   The value of the condo has doubled since owner first purchased it.  She thinks market rate rental is fair at about $500 per month.

So ideas on valuation of KY property (they haven't kept all the expenses put into the house)?  Valuation for 2 then 3 rooms in a house not really ready for prime time inhabiting?  Allocation of expenses?  (I'm inclined to call this 'house sitting' or something since no money changed hands and for other reasons.) What about the condo in Berlin?  Seems I have to report income but what about expenses that she pays but is not legally required to?

My brain hurts.  It's a good thing these are all super nice folks.  Then the Australian has a house here in OH that she had to rent because she had to be out of the country for a year.  Sheesh!  I'll worry about that one tomorrow.

[Lee B]

This is mindboggling ! Where do you find these clients ? LOL

[Margaret CPA in OH]

Yep, tell me about it.  A few years ago one came to me and suddenly I am the foreign tax expert and they keep coming.  Being German (not the Aussie), they are incredibly organized and precise but also arty type folks so we often really don't speak the same language!

The Aussie - she's a real problem child and not even in the country.  She came to me last year never having filed since being in the country since 2011.  So we caught her up as she was trying to get her green card and was worried not having filed could be a bad thing (ya think?).  Some years were out of statute but filed fed and state anyway and she got  back over $10,000.  She loves me now.

[schirallicpa]

wow - I won't complain about my PA/Canadians anymore!

 

[Max W]

Hmmm! Sounds like a theme for a comedy movie.

[Margaret CPA in OH]

Y'know, it might be funny but it's real to them and me and, while I sense great sympathy along with gratitude that they aren't your clients, I am still hoping for some genuine suggestions here.  I can be pretty creative at times but this can of worms is a bit much for me.  If they weren't all such super nice folks, I would send them away but I am just certain, that with a little or lot of help from my friends here, solutions can be found.

Let's think outside the box but within the regs, of course, and be sensible, too.  I'm inclined to skip the tenant in OH for 3 months as basically a house sitter but do need to do something with her Berlin condo.  For the OH house, it really is a 2018 issue so maybe I'll retire first .

Thanks for whatever you might offer - really!

[FDNY]

Achtung!  If I were handling this I would simplify and keep it basic as much as possible to begin with because going forward it sounds like there will be other complicated factors with renovations and foreign tenants and exchange of rent for loans, almost as complicated as this run on sentence.

[easytax]

Easiest thing (and safest) is to treat EACH item on it's own. Does NOT matter if they co-mingle or barter, etc..  Look at each as its own individual occurence (for person) and things get a lot simpler. Take the dynamics and inter-play out and then the picture can become clearer. Maybe not easier as they are still a lot of parts --- but much easier to look at and plan and tax individually.

Of course, I am also known to be simple-minded, so use idea at your own discretion.  ALSO, life might be boring except for things like this.   ///If it happens, God let it and God does not allow more than we can handle (whether we think we can handle it or not -- GOD knows we can).

[Max W]

OK, Margaret, since you want some concrete suggestions, here we go.  

You start with the purchase price as the basis to the house.  If the professor has receipts for 2017 he can total up, they can be added up and added to the basis.

For simplification, as you suggest, start with Jan 1, 2017  as beginning rental date.  For 2018, if there are more improvements, add them as improvements with a depreciation date of 07/01/18.  

The $650 non cash loan repayment should be included as rental income.

For the wife who does NOT own the condo, the rent can be included as Misc Income on Line 21.  However, in reality it is a gift from her parents and should not be reported as income.  If she wants to make it strictly legit, the rent money should go to the parents who then can send the money to her.

[Terry D EA]

<<<<<<<OK, Margaret, since you want some concrete suggestions, here we go.>>>>>>>>>

Isn't this why she posted it in the first place? While I'll agree that I am glad that I am not dealing with this, I too would suggest taking each item separately.

The debacle with the 12 room unit is a challenge. You could keep the expense to each unit separately along with the rent received for those units. Question is, how do you take depreciation on anything when the building in it's entirety was not ready for rent? It is apparent the rehab(s) are capital improvements but again, how do you determine basis if they are not keeping up with the expenses. Maybe they will have credit card receipts or statements that you could pull expenses from. Maybe the other thing is if the units are all relatively the same size then maybe you could divide the expenses proportionately. It will be interesting to see how this comes out. 

[Margaret CPA in OH]

Thanks for lots to ponder and, yes, it will be very interesting to see how it all comes out!