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Tax Law (Questions About Taxes)/Buying property for Sr. Parent


QUESTION: Hello John,

First, thanks for doing this.  

My wife and I live in Virginia and have joint gross income around $160K per year.  We have a mortgage on the house we live in, and one rental property.

My 69 year old father lives on a social security payment of $1,300 per month in Iowa, and we need to figure out a way to house him there within his fixed budget.   One thing we have considered is buying a $75K condo as another investment property, or cosigning a loan allowing him to buy it with our help.

From a tax standpoint, is there strategy I should strongly consider?  If we co-sign a loan for him, can we claim the interest deduction on our taxes since he doesn't need it?

This is just the beginning of us exploring options and really need help in figuring out ways to take care of dad that make financial sense.

Thank you,

ANSWER: Chris,

Thanks for your question. There are several factors to consider. I can't tell you which would be best in your situation.

If you co-sign the loan, you can deduct the interest only if you pay it. It would have to be treated as your secobpnd residence, and the IRS does not allow you to deduct interest on more than two residences. So if you have or contemplate a second home, this strategy would not work for you.

It would be best if the property were titled in his name he could take advantage of the exclusion of gain on the sale or you could get a stepped-up basis if you inherit it.

If you buy it as an investment property, but he is living in it, the IRS would likely consider it as a second residence for you or a rental not for profit which has limited deductions.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Thanks John,  if you don't mind I have a follow up:

Does our current rental property count towards our two residence limit?  If not and we co-sign a loan we could deduct all the interest if we at least pay the interest portion of the mortgage payment?

If our current rental puts us at the two residence limit, we can deduct as a rental not for profit but you said there are limits.  Is there a way to figure out what the limits would be (the property Iím eyeing is $75K).

If we co-sign the loan and he wills his interest in the property to me, youíre saying I may be subject to the step up on my initial interest in the property, but not what I inherit?

No, a rental for profit is not considered a personal residence, so it does not count toward the two.

I don't hank you are on shaky ground by specifying that you are paying the interest only. I'm unaware of ant situation where that has been addressed by the IRS, so it might fly.

The limits on a rental not for profit limit your deductions to income received. Interest and taxes are fully deductible, but count against the two as personal residence.

You would not get a step up in basis on your portion of the property just his portion.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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