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Discussion:Rental to family member

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Discussion Forum Index --> Advanced Tax Questions --> Rental to family member


Discussion Forum Index --> Tax Questions --> Rental to family member

Xz (talk|edits) said:

28 March 2011
Hi all:

This client rented his house to his son and his roommate at lower than fair market rent (market rent 1200, son paid 700). Can this property be treated at rental property?

In another two months, the property was flooded and insurance company paid him 1200/month. I would think the 1200 is considered rent and the property can be treated as rental property.

Any opinions? Thanks!

Solomon (talk|edits) said:

28 March 2011
Rental rate below FMR is considered personal use - taxes and interest on Sch A.

Xz (talk|edits) said:

28 March 2011
Thanks, Soloman.

Xz (talk|edits) said:

29 March 2011
If owner of rental property charges his son fair market rent and gives his son money as gifts, will this property will treated as rental property?

Solomon (talk|edits) said:

29 March 2011
Don't know if one could characterize this as a step transaction but is a bit smelly.

Marcilio (talk|edits) said:

29 March 2011
Treat it as a vacation home. Report income as well as mortgage interest and real estate taxes on Sch E to the extent of income. Excess interest & real estate (pro rata) go to Schedule A. Losses are not deductible.

See Publication 527

Solomon (talk|edits) said:

29 March 2011
Xz, you might want to read Jackson

Lumexx (talk|edits) said:

30 March 2011
Solomon earlier stated interest and taxes go to schedule A. I agree. If rental is below market for entire year ie"rent to son" then I believe it is treated as a second home because it was used for personal purposes the whole year. If it is treated as a second home, then logic says none of the expenses are deductible except for depreciation up to the rent. If home is rented at FMV for part of year, then expenses can be prrtated and deducted for the portion of the year at FMV. My software does this calculation like this (lacerte) and also the worksheets in the instructiona for vacation homes works the same way.Lumexx 01:02, 30 March 2011 (UTC)

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