Young couples can often afford to make the monthly mortgage payments on a house but lack money for a down payment, which is where parents can best help.

Many parents may not want to make an outright gift of $20,000 or more but might agree to an arrangement that offered tax benefits and potential profit as well as a chance to help their grown children.The accounting firm Ernst & Young offers an example of an arrangement structured to benefit both parent and child.

Bill and Betty Younger have an annual income of $48,000, enough to make the $672-a-month mortgage payment on a $100,000 house with a 20 percent down payment at current interest rates. But they don't have $20,000 cash for the down payment.

Betty's parents, the Elders, agree to provide the $20,000 down payment, plus $5,000 in closing costs in return for a 25 percent interest in the house. They will pay 25 percent of the mortgage and other housing expenses. But Betty and her husband will pay the Elders a monthly rent equal to 25 percent of the $1,000 in rent the house would bring on the open market.

The deal, worked out in a legal office, brings benefits to both the young married couple and the Elders.

- Bill and Betty become owner-occupants of the house, paying 75 percent of the monthly mortgage and real estate taxes plus $250 a month rent to Betty's parents. Payments on the real estate taxes and mortgage interest is tax-deductible for the Youngers. The rental payments are not deductible.

- The Elders become owner/investors, paying 25 percent of the mortgage, taxes, insurance and maintenance. They can deduct these expenses from the taxable rental income, along with 25 percent of the property's annual depreciation.

To see how the financial picture would work for the Elders, based on a variation of calculations put together by Ernst & Young, see accompanying chart on page C3.

Since the Elders' expenses exceed their rental income by $700, they may be able to deduct that loss against their regular income in the current year, depending on their tax situation. If not, they can deduct the loss from the capital gains taxes they will have to pay on their share of the house when it is sold for a profit.

The Youngers will be able to deduct the interest they payon the mortgage, about $6,000 in the first year, plus their share of property taxes, $1,500.

Parents and children could work out variations of this idea to suit themselves.

Parents might prefer not to pay any of the mortgage, which would reduce their expenses and increase the tax deduction the children could take.

Or parents with very high incomes - above $150,000 - might structure the deal to qualify the house for personal use, which would allow them to deduct their share of mortgage interest and real estate taxes in the current year.

To qualify the house for personal use, the parents would have to charge the children a negligible rent or none at all.

Young couples lucky enough to have parents willing to help with a house purchase might explore the idea of cost sharing with them. Financial planners, real estate lawyers and some real estate agents will be able to offer suggestions for structuring an arrangement.

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(Chart)

Financial picture for parents

The Elders' expenses and income from the house look like this:

Income:$3,000 ($250 a month rent x 12)

Expenses:$3,700

Mtg. interest$1,900 ($160 a month x 12 minus principal)

Depreciation$900 (25 percent of $3,600)

Property tax500 (25 percent of $2,000)

Maintenance300 (25 percent of $1,200)

Insurance100 (25 percent of $400)