Advice for helping sister-in-law with delinquent property taxes

x-posted to r/personalfinance, r/realestate, and r/legaladvice. I think that both sub-reddits are appropriate for this, so be gentle if I'm wrong.

We just found out that my sister-in-law (SIL) is delinquent on two years of property tax on her primary residence and a rental property she inherited 5 years ago, both in NV. In addition, she is similarly delinquent on sewer bill payments on both properties and water bill payments on her primary residence. The total between the two properties (including interest and penalties) is about $11K, which she does not have. She is asking us for help in getting this out of delinquency, as she does not have the resources to make it happen. As much as it frustrates me to take this on, my wife has asked that we get the properties out of delinquency to protect her sister from homelessness and to help address some mental health issues the circumstances have exacerbated. We have the resources and will most likely do so, but I want to put some things in place to make sure that we don't have this happen again.

A little background on the SIL. She works in broadcast radio as an announcer and is a musician, both in local bands and freelance, so her income is not substantial. She is in her mid-50s, and I believe that she has no savings, either liquid or for retirement, and no (or minimal) health insurance. In addition to work income, she is dependent on the rental income from the second property. The primary residence is jointly owned by her and my wife, but my SIL owns the second property. There is no mortgage on either property.

Since this just came up in the past week, we've been doing some research to understand the nature of the problem outlined above, and we've been looking into options to approach this long-term once the current issue is addressed. There are still some other unknowns we need to understand, but we want to move pretty quickly. With some advice from two of my wife's uncles, one on each side of her family, and both of whom are VERY level-headed and have experience with real property and family, we have developed a plan, on which I would like some feedback and advice. Here's what we are looking to do (in rough order):

  • Pay off the delinquent taxes, penalties, interest, and utilities to remove the risk of losing the properties. (We will liquidate a portion of a stock portfolio to do this. Impacts plans down the road, but mostly nice to haves.)

  • Change the billing address for the property taxes (and possibily the affected utilities) to us moving forward, and pay those bills as they come up.

  • Transfer title on both properties to us (or the trust we hold other property under).

  • Lease back my SIL's primary residence to her, with a rental payment that would cover the property taxes and utilities, with an actual lease agreement.

  • Continue to have the rental income from the second property going to my SIL.

There is a LOT of complexity (at least in my head) around this, and all of it makes me extremely nervous, especially since I have an aging mother that may need my help in the near future (my wife's parents are deceased), and two kids starting college (in theory) in the next few years (we have funds set aside that would cover in-state today, but who knows where they'll actually go). And my SIL is pretty flakey, so none of this planning has any guarantees that everything will work they way we expect. Not to mention that business and family rarely mix well.

We will be meeting with our accountant, and we need to find a new attorney (our previous attorney retired, and we haven't looked for a new one). We've started to develop some questions that we will ask. For example:

  • Short-term, if we do this, can we deduct property taxes paid on property we are not the owners of?

  • Similarly, can we deduct the interest and/or penalties to bring the taxes up to date?

  • Who is responsible for taxes on rental income if said income is going to someone other than the property owner?

  • If we transfer title on the rental property to my wife, who is the landlord? My wife, since she ows the property? Or my SIL, who receives the income?

  • If we have lease her primary residence back to her, can we make my SIL responsible for property upkeep? Or do we becom responsible for that as the landlord?

Most of this is short-term stuff, although there are long-term implications. I also know that this only summarizes the situation. I'm hoping that you all might have some insights or observations that I may have missed or that could help direct me. In addition, questions that I should be asking my self, my wife, my SIL, or an accountant or attorney would be greatly appreciated. And finally, if there are online resources available that might help in the thought process, those would be of help as well.

I'm feeling out of my depth, so thanks in advance for any thoughts or assistance!

More real estate tips at Program Realty Wix site


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