Weird lease on rental

[Margaret CPA in OH]

Extended client purchased property in July 2020, signed lease with brother for 6 months, $1000 security deposit, $0 rent, to serve as resident overseer while property was remodeled.  So was it placed in service July 2020 since someone was living there?  As it was clearly below market rent (or was it?  may have been uninhabitable for most folks) does that come into play with no deductions?  Or was 0 rent in lieu of hiring someone to oversee the project and secure the property? 

Client put this into her new LLC for which she also bought a new phone and separate line for $1000, logo, business cards, Google GSuite, and IPad for $1200.  But no other business was conducted, just finding the property, arranging contractor, etc.  Ugh!  I really am uncomfortable although she is not disagreeable about not placing in service the rental until Jan. 2021.  I think I have to see what happened so far this year.

Insights?  Her Articles of Organization mention real estate investment and creative services but she says she has done nothing with creative services.  Given the expenditures,though, it seems as if she is prepared!  The problem is she is a neurosurgeon earning $500,000 and needs to put some money somewhere.

[Lee B]

I remember you posted about this client before and received a number of responses?

[jklcpa]

Maybe some of these responses were helpful?

 

[Margaret CPA in OH]

Ah, I remember now!  See what happens with age and frustration?  I have to deal with this now so am anxious.  Thanks, younger, helpful folks.  I will go review the great insights presented then.  My apologies.

[DANRVAN]

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

As it was clearly below market rent (or was it?  may have been uninhabitable for most folks) does that come into play with no deductions?  Or was 0 rent in lieu of hiring someone to oversee the project and secure the property? 

I think it would be hard to justify $0 rent as fmv from brother.  How much time did he actually spend overseeing the project?  I would probably draw the line on Jan 2021 for placed in service.

 

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

bought a new phone and separate line for $1000, logo, business cards, Google GSuite, and IPad for $1200.

Can she prove they were ordinary and necessary per sect 162 as well as percent used for the rental?

 

On 8/12/2021 at 3:56 PM, Margaret CPA in OH said:

neurosurgeon earning $500,000 and needs to put some money somewhere.

So no rental write off due to PAL limitation.