Skip the Dorm, Buy Your Kid a Condo

(From realmoney.com) Prices in many real-estate markets may be close to bottoming out. We hope. So the old adage about buying low may be something to consider if you have a kid who will soon be heading off to college. The idea is to buy a condo for the kid to live in while attending school. That way, you’ll avoid paying through the nose for a dorm room or apartment with no hope of any profit. And if you buy a condo that has some extra space, you can rent it out to your kid’s friends and offset some of the ownership cost.

Lots of parents have made good money by following this strategy for the four or five — or, God forbid, six — years their kids spent in college and then selling the condo after graduation. Of course, the longer you can hold onto the property, the better the odds of cashing out for a profit. The other key factor to consider is the tax benefits. Here’s what you need to know.

The tax rules generally prevent you from deducting losses incurred from owning and renting out a residence that’s used more than a little bit by you or a member of your immediate family. However, a favorable exception applies when you rent at market rates to a family member who uses the property as his or her principal home. In this case, you can deduct tax losses from the rental activity (subject to the passive loss rules, which I’ll explain later). This beneficial loophole is open for you if you buy a condo and rent it out to your college-going child (and roomies, if any) at market rates.

Read more here: Skip the Dorm, Buy Your Kid a Condo