Q After purchasing a second home, I plan to have my senior mom move into my first home, but she can't afford to pay the total mortgage payment, so I will subsidize that difference.
Do I have to claim her rental fees as income? What about my homestead status? Also, should I have her sign a rental lease agreement to protect myself and my second home, which will be my primary residence?
Should I change my homeowner's insurance policy to cover renting it out? Also, should I incorporate or register as a business and is there any liability protection or are there tax benefits to that rather than renting it to my mom as an individual?
A It always make sense to have a lease that spells out the rights and responsibilities of the person renting your property, even if that person is a relative. Putting it in writing avoids later disagreements about who is responsible for what, and how disagreements can be handled.
There are many good organizations and publications. The Minnesota attorney general's office has a very good publication titled "Landlords and Tenants: Rights and Responsibilities." You can get that publication for free at the attorney general's website.
The Minnesota State Bar Association has a standard residential lease available for download in the forms area of its website. Homeline, a tenants' organization, also has good forms and publications.
If you are receiving money from someone for rent, you have to claim that amount as income on your income taxes. The good news is that if you are renting a property, you can take numerous deductions for repairs and other items. You should talk to an accountant about these tax issues so you can get advice tailored to your situation.
If you are not claiming the property as your primary residence, then you will lose your homestead status. The rules regarding homestead are usually pretty easy to enforce -- it's fairly obvious when you claim both properties on your taxes. Your mother, as a renter, will likely get a rebate when renting the property. That is something you can consider when setting her rent.
Whether you want to incorporate as a business is primarily related to whether the mortgage for your property will permit you to transfer the property to a business entity you control. Most mortgages have "due on sale" clauses that prohibit transfers. You should look at your mortgage if you are really interested in creating a separate entity to own and manage the property. If you are listed as the owner of the property, then you will retain liability, whether or not you have a corporation or a limited liability company that operates as the de facto owner.
So, unless your mortgage permits you to transfer the property without penalty, there is generally no benefit. Your accountant may have some suggestions for you in particular, so make sure you raise this issue with him or her.
You definitely should update your homeowner's insurance. Many insurance policies require that the property be occupied by the insured, and if something does go wrong, you do not want to lose your insurance coverage on a technicality.
The biggest problems when renting to family are expectations. What are your mother's expectations and what are yours? While you are obviously doing this as a favor, making it a clean business transaction with everything in writing can avoid a lot of problems down the road.A standoff on stained carpet
Q My wife is very upset about the condition of the carpets in our new apartment. The landlord insists they were professionally cleaned. Even if that is true, there are some stains left behind, which they say they won't do anything about.
Because this isn't like a door that won't lock or no running water, is this issue worth pursuing in conciliation court? I already sent them a letter giving them 14 days and got no response. Also, I talked to someone at a housing/counseling agency about this, but now can't find it or its website. It was 'home' something. Do you know how I can find it again?
A The name of the agency you talked to was most likely Homeline. Its phone number is 612-728-5767. Minnesota Statute 504B.385 allows a tenant to bring a rent escrow action for a violation of the housing code or the lease. Whether a spotted carpet would be considered a violation is debatable.
You did the right thing by writing your landlord a letter and giving them 14 days to resolve the problem. Because your landlord did not fix the problem, you can now bring a copy of the 14-day letter to the county where you live and file the action if you feel that the spots are so bad they affect your ability to enjoy living in the property.
Kelly Klein is a Minneapolis attorney. Do not rely on advice in this column regarding a legal situation until you consult a qualified attorney; information provided by readers is not confidential; participation in this column does not create an attorney/client relationship, and no such relationship is created without a retainer agreement with Klein. If you have questions concerning renting, you can e-mail her at firstname.lastname@example.org, post your questions at www.star-tribune.com/kellyklein or write in care of Star Tribune, 425 Portland Av. S., Minneapolis, MN 55488.
Read past columns and study rental market data at startribune.com/rent.