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    l336ashkicker's Avatar
    l336ashkicker Posts: 8, Reputation: 1
    New Member
    		  
    #1

    Nov 21, 2008, 07:25 AM
    Renting to family
    I recently rehabed a house for my in-laws. I own the house and rent the house to them. The mortgage is approximately $750/month and they give me $650/month. I also take care of the property taxes.

    I was told by an accountant that since I was renting to family I couldn't claim any of the interest or property taxes on my federal taxes. My wife spoke with a friend who didn't believe that to be true. If I can claim this expense, I will amend my 2007 taxes.

    I figured if anybody would know, somebody from this forum would.

    Thanks in advance.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #2

    Nov 21, 2008, 12:47 PM
    The accountant is NOT correct. You CAN rent to family and claim all of the expenses associated with a rental on Schedule E.

    However, you MUST be careful. The IRS looks at ANY transaction between related-parties with a healthy amount of cynicism.

    For one thing, the rent seems to be too low. If you were renting to strangers, you would charge a rent to at least cover the costs of the mortgage plus property taxes plus an additional amount to cover normal maintenance costs.

    I suspect that a rent of $850 is probably more appropriate. However, if you can show that other house of similar size in the neighborhood rent for $650, then the $650 you charge is fine.

    The thing to remember when renting to family is that you must treat them the same way you would treat a stranger!

    This means you should have a lease with a security deposit and provisions for collecting the rent, with a surcharge for late payment.

    Do that and you will have NO problems with the IRS.
    The Texas Tax Expert's Avatar
    The Texas Tax Expert Posts: 310, Reputation: 7
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    #3

    Nov 22, 2008, 07:12 AM

    If you are not renting it for profit, you can only take deductions up to the amount of the income. You can't make a loss.
    Fr_Chuck's Avatar
    Fr_Chuck Posts: 81,301, Reputation: 7692
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    #4

    Nov 22, 2008, 07:36 AM

    And also it is not the same as taking the interest and taxes on your personal home, this would be done as business expernse, so you are in the rental business now. That is why you have to run it like a business.
    IntlTax's Avatar
    IntlTax Posts: 831, Reputation: 23
    Tax Expert
    		  
    #5

    Nov 24, 2008, 06:27 AM

    If the amount of the rent charged (to a family member or otherwise) is not fair rental value, then the rental is considered personal use of the property under Code § 280A. If this is the case, you can only deduct interest and taxes for the property and no other expenses (such as depreciation).
    l336ashkicker's Avatar
    l336ashkicker Posts: 8, Reputation: 1
    New Member
    		  
    #6

    Nov 24, 2008, 04:39 PM
    Thanks to all for responding. All I am looking to recoop is property taxes and the interest on the loan. I am not looking to claim a loss for repairs, difference by the way loan and rent, etc.

    Thanks again for all the responses,
    Ash
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #7

    Nov 25, 2008, 11:01 AM
    Glad to help!
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