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‘It’s a touchy subject’: My in-laws live in our basement. They gave us our 20% down payment. Should we charge them for renovations?

Dear Quentin,

Last year, my husband and I approached my in-laws to see if they wanted to live with us. We had learned that my father-in-law had terminal cancer but could still live five to seven years in remission, and we felt that when the time came and my father-in-law passed, the adjustment would be easier on my mother-in-law, as she is quite dependent on him.

They agreed to this arrangement, and we each sold our homes for a profit; my in-laws already owned their home outright. We agreed that my in-laws would give us the 20% down payment we needed to buy the new home, and we would make the monthly mortgage payments. This 20% down payment is my husband’s inheritance.

“‘Who should be responsible for major upgrades or renovations to the house? For example, the central air conditioner will soon need to be replaced.’”

We bought a three-story house and converted the basement into an in-law suite, which amounts to more than 20% of the total living space in the house. But we’re not sure who is responsible for the ongoing costs of running this house, and it’s causing friction. My in-laws pay the property taxes, and we pay monthly utilities and home insurance. They do not pay rent. Is this fair?

Who should be responsible for major upgrades or renovations to the house? For example, the central air conditioner will soon need to be replaced. Who should pay for this? Should it be my husband and I, as the homeowners? Should we ask his parents to pay 20% of the total cost? What about renovations such as railings that need to be installed to help keep them safe?

It’s a touchy subject. The way my husband and I approach money is very different from the way my in-laws do. What do you suggest?

Financially Frustrated

Dear Financially Frustrated,

If you start from a position of shared responsibility and accountability, it will be easier to find a solution that is palatable to everyone. 

Let’s start with what you all have in common. There’s no one to blame, and there’s everyone to blame. There’s no one person at fault, and everyone is at fault. You embarked on a joint-living situation without a clear understanding of what you were getting yourselves into or how you would split the expenses.

Let’s say the property taxes amount to $25,000 a year. That’s a fair sum for your in-laws to pay in lieu of rent. Asking them to pay for central air conditioning or other renovations, given that you own the home, seems like a sharp practice. No one likes unexpected bills. This should have been agreed upon before they moved in.

There is also the issue of goodwill. You and your husband were able to afford a larger home because of the 20% down payment given by your in-laws. Your house, even in a property market that appears to be cooling after prices soared during the first two years of the pandemic, will continue to increase in value.

The extra help from your in-laws with the property taxes, which are not insignificant in many U.S. localities, has also enabled you to upgrade. Now is not the time to nickel and dime your in-laws by asking them for 20% of this and 20% of that. It is the time to stick to the deal, so you can all have a peaceful and happy co-existence.

“There is also the issue of goodwill. You and your husband were able to afford a larger home because of the 20% down payment given by your in-laws. ”

Some related news on the tax front: Your in-laws, and any other individuals with the means to do so, could each give away up to $12.93 million (after tax exemptions increase in 2023) to their family members through gifts made during their lifetime or through bequests without incurring any federal gift- or estate-tax penalty.

As a married couple, they could give away $25.84 million without incurring a tax hit. Next year, the annual gift-tax exclusion will also increase, to $17,000 from $16,000. These exemptions rose significantly with the Trump-era Tax Cuts and Jobs Act. Good news for the transfer of wealth among, well, wealthy family members.

As for your original question: Asking your in-laws to contribute 20% of the cost of air conditioning sounds mathematically logical, given that their living space accounts for 20% of the home’s square footage — but their 20% down payment should weigh against such a request.

Uncertainty leads to anxiety, and that leads to resentment. Set clear expectations so they — and you and your husband — are not living under a cloud of insecurity about who paid what, or of doubt about who should pay what. Your in-laws are paying guests in your home, but they are guests nonetheless.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

Also read:

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‘Love yourself and protect yourself’: I care for my mother, 90, and husband, 73. He contributes nothing. I work and pay all the bills. What hope do I have?

‘He implied he was financially secure’: My husband was always hesitant about his finances. Now I know why.

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