You can claim parents as dependents
Q: I give my parents approximately $2,000 every month to help with their expenses. They are retired. Do they have to file this as income on their tax return next year? Is there a maximum I can give them so that they can avoid filing it on income taxes?
A: No. They don’t have to declare the money as income. Actually, you might be able to enjoy a tax deduction by claiming them as your dependents. Talk with a tax adviser to find out.
If your parents cannot be considered your dependents and you are single, you need to file Form 709 Gift Tax return since your gifts exceed $12,000 annually.
Q: My brother and I inherited a house. We were both added to the title by our father. The house was completely paid off. My brother was in need of money, and since he had a bad credit history, he asked me to co-sign on his equity loan against the house for $50,000. He also borrowed $20,000 from me, also against the house. I have paid $25,000 for medical and funeral expenses of our father. We could not sell the house and have rented it out for $1,400 a month. The house now needs repair, and I need to invest another $25,000. The fair market value of the house is $350,000. I would like to keep the house as an investment (beach property). I recently learned that my brother is threatened with lawsuits by his former business partners for $45,000 and $18,000. There might be other creditors that I am not aware of. He signed promissory notes to his partners that obligate him to pay them back upon the sale of the house. How can I protect my investment and my share in this house? A friend recommended registering it as an LLC.
A: I’m afraid that you’ve been suckered by your brother. Looks like his business partners have been, too. This is unfortunately a common occurrence. The key is to put an end to the problems and separate your finances from his.
You did not ‘co-sign’ a loan for him; since both of you own the house, both of you obtained the mortgage loan. As far as the bank is concerned, you are equally liable for that debt. If he does not pay, the bank will look to you for the money. If the loan is not paid, the bank will foreclose on the house.
Therefore, I strongly recommend that you sell the house. Pay off the mortgage, and with the remaining proceeds, take from your brother’s share the money that he owes you. What he does with the rest of his share is his problem and his business partners’ problem
After all is paid, you’re free to use your proceeds to buy a new beach house if you wish. (Not that I’d recommend that, but that’s another story.)
By the way, forming an LLC is not likely to serve any useful purpose in this situation. Instead, talk with an attorney and take steps to separate yourself from your brother (economically) as soon as possible. This means you must never lend your brother money in the future, no matter what. Should you ignore this piece of advice, consider any money you lend him a loss. You wouldn’t be able to write it off on your taxes as a bad debt unless you make him sign a formal loan agreement ‘ and you must be prepared to sue him if he violates that agreement.
Financial Adviser Ric Edelman is the author of several best-selling books about personal finance, including ‘Ordinary People, Extraordinary Wealth’ and ‘Discover the Wealth Within You.’ You can e-mail him at [email protected].