Technical topics regarding tax preparation.
5-Sep-2019 2:22pm
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I researched this and found a very good discussion involving Chris (Ckeneflik) and Dave Fogel on this topic, and a few others who no longer post here. Situation is my client has started renting two rooms to her daughter and granddaughter, her address is their address. She is renting both rooms for $800 per month. Craig's List provides some information about similar rentals and the rate is usually $600 to $800 per room in our area. So we are below FMV on the rents. I just want to be sure that these rented rooms will still be considered personal use, the income reported on Line 21, mortgage interest and property taxes will still be on Schedule A, no depreciation or other expenses allowed. That seems to be the conclusion in the 2014 discussion, and seems to meet the rules outlined in Pub 527.
5-Sep-2019 2:46pm
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I agree with that treatment if in fact the entire $800 consists of rent payments.
It may be possible to consider some portion of the payments as applied to expenses that the daughter and granddaughter have actually incurred. They're sharing utilities like electricity and water, and they might be sharing food, telephone, and internet as well. Also, if your client wants to take the position that these two share equitable/beneficial ownership of the house, we might consider them liable for a portion of the mortgage interest and real estate taxes as well.
If your client provides an accounting of the expenses and how they are allocated between the various residents, then does a true-up at some point, that would make the position pretty solid in my opinion.
5-Sep-2019 3:06pm
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I'd push more into Chay's ideas....is this really a rental for profit? Or just expense-sharing arrangement to help them out? Hint hint.
5-Sep-2019 5:07pm
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If truth be told, it's more of an arrangement to help the daughter stay clean and sober. It is not a rental with a profit motive.
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