RRZ.com Investments

Tax implications of Investment Property Income to a minor?

My husband and I just bought an investment property that we intend to rent. We purchased the property for a 10 year old minor with the intention of us making the monthly mortgage payments and the child receiving the monthly rental income (approx. 12K annually) to put in a savings account. Will our 10 year old have to file taxes on this income?

Public Comments

1. yes and you will lose your ability to deduct or claim his as a dependant. I advise seeing a tax accountant before you go any further.
2. A tax return will need to be filed for a person of any age with approximately $12,000 in annual income. However, a tax return on which rental property income is reported is too complex for a ten-year-old to prepare. Therefore, have an adult prepare the return for the child to sign.
3. The IRS will have a field day auditing this. You cannot reassign income to your child. The rental income is yours and needs to be reported on YOUR tax return via schedule E. You can gift $12,000 a year to your child to their UGMA account--and this isn't taxable income to them, but any interest it makes is.
4. You will have to report the income, either on your personal return or a separate return for the child. However, since he/she is still a child, even if you reported the income on a separate return for him/her, he/she would be taxed at YOUR tax rate. You should talk to a CPA if you want to do anything fancy like this.
5. You will definitely benefit by contacting a qualified professional tax preparer. The income and expenses will be reported on your tax return. If you choose to gift funds to your child, do so. Better yet, contribute to a 529 plan if some form of higher education is in her/your plans. You cannot just allocate the income from this rental to the child as she does not own the property. Even if she did, minor's income over about $1800 has to be taxed at the parents' rate anyway. Keep it simple and straightforward.