AirBNB when income not going to owner of property

[ljr]

My clients own a second home which they rarely use but want to keep to pass on to 2 adult daughters when they are gone. Daughters suggest they set it up to be an AirBnB which they will "do all the work" so the parents don't have to do anything. Only parents own the house but the daughter set up her name and social security number with AirBnB. Daughters open bank account to deposit receipts and pay any expenses related to the rental.

Shouldn't the income (1099) be in the parent's name? Can non-owners rent the property out? Other income to the daughters with no expense deduction? Put Mom on "rental" bank account? Daughters be treated as "rental agent" as a pass through?

So far everything I've read on AirBnB's I don't find the situation where the owner is not the one renting it.

Thanks for any advice.

[Just-Lisa-Now-]

its possible for someone thats not the owner to sublet and rent to someone else....its usually not in the homeowners best interest, but it happens.

[ljr]

daughters aren't subletting though - neither lives there nor pays "rent" to their parents. Put on daughters return as income with matching expense to zero out as a pass through and then put on parents return - or should they get airbnb fixed to parent name.

[BobKamman]

Are you asking us how to do it, or telling us how to do it?  

Would it make you happy if the daughters paid $10 rent to the parents?  Or perhaps a peppercorn on Michaelmas?

What if the parents let their son use their car to drive for Uber?  Are you going to put that on their return, also?  

[ljr]

I'm asking what is the correct way to handle the situation and if I need to tell them to do something different (switching rent directly to Mom) or if they don't how do they report on each of their tax returns. Mom is currently my client - daughters are not.

[Just-Lisa-Now- · Accepted solution]

Ive got a little old lady that basically "gave" one of her rentals to her son.  Its not a legal transfer, or a gift, shes waiting for him to inherit it when she dies but she basically said "Here, do with it what you want". 

He rents it out and keeps the money and pays for and does all the maintenance on the house...We put the income and expenses he pays for on his return....he doesn't get any depreciation since he doesnt own the home, but the income and maintenance expenses all go on his return.

[ljr]

great thanks - that is kind of the situation here and we will approach this the same way unless I find out any additional details that contradict what they originally told me.

[qbteachmt]

"daughters aren't subletting though - neither lives there nor pays "rent" to their parents."

Neither of these conditions defines a sublet, though. There are listings in my area for BnB where the person running the operation has leased a lot of properties in the downtown core just for this purpose. It could be that between the income and operating expenses, the Net is being kept by the person doing the operation. Which, being active, makes this Sched C activity, of course.

Second homes have no tax reporting benefit to the owner, under most conditions, anyway. Not being the person running your property as a BnB doesn't change that for this owner.

[BobKamman]

You may, however, have some gift-tax consequences.  Support comes from the Tax Court and the IRS who have taken the view that there can be a taxable gift in connection with a landowner’s failure to charge fair market rent. See Wineman v. Commissioner, T.C. Memo. ¶ 2000-193 (2000) (here the taxpayer made a taxable gift by renting ranch property to her children at a below-market rate); and PLR 9433016 (requiring fair market rent in a post-QPRT termination lease arrangement). These authorities rely on the assumption that there is value in the use of property and that allowing someone to use property without paying for the use is a gift.

https://www.eisneramper.com/gift-tax-real-estate-0314/

[mhsmith53]

Doesn't someone have to claim the depreciation (assme the little old lady)?