A way to invest in your child's home

I want to help my son buy a home, and I've heard that I can get tax benefits by doing it through something called a shared-equity financing agreement rather than just giving him cash. How would that work?

Essentially you and your son would buy the house jointly and be considered co-owners. He would have to pay you rent for the right to live in the home, which would be considered his principal residence. The rent would be a percentage of the fair market rent the home could fetch, proportional to your investment in the property. It would also be taxable to you as income, but if the arrangement is set up properly you could claim offsetting tax deductions for your share of any mortgage interest, property taxes, insurance premiums, maintenance costs, and utilities you pay, as well as depreciation. If those costs exceed your rental income, however, they'd be considered passive losses and most likely wouldn't be deductible. When the home is sold, you and your son also will share the profit or loss. This is a potentially complicated arrangement, so be sure you consult a knowledgeable attorney and accountant so you understand all the ramifications and strike a deal that maximizes the benefits for both you and your son.