rental to a family not fmv

[grandmabee]

I have a client who started to rent there rental house to a family member. Not at fmv. So no loss. but do I report income and expense up to income and show no loss and no income or does it fall under the vacation home rules where I report all the income but no loss. Any help would be appriceated.

[RoyDaleOne]

See Pub 527.

Sec. 280A. Personal use by a child is treated as personal use by the taxpayer when rent is less than fair market value. Thus, all expenses are deducted on Schedule A. Income, however, appears on Schedule E.

You did not say what the family relationship is.

[Catherine]

See Pub 527.

Sec. 280A. Personal use by a child is treated as personal use by the taxpayer when rent is less than fair market value. Thus, all expenses are deducted on Schedule A. Income, however, appears on Schedule E.

You did not say what the family relationship is.

How close to FMV does the rent need to be before this kicks in? I have a couple who rent the other half of their two-family house to family members. Rent is _almost_ FMV -- basically, it _was_ when they first rented, and the landlords just haven't raised their rate very much because they are good tenants (aren't noisy, don't trash the place, keep an eye on the other side when the owners are away, etc). Seems there is a grey area between what most landlords do to keep desirable tenants and giving family a break. Any guidelines from anyone on where that line is?

Catherine

[grandmabee]

See Pub 527.

Sec. 280A. Personal use by a child is treated as personal use by the taxpayer when rent is less than fair market value. Thus, all expenses are deducted on Schedule A. Income, however, appears on Schedule E.

You did not say what the family relationship is.

so interest and taxes on A ...insurance, repairs & maintencce also. 2% or is this just a second home and only deductions are the taxes and interest.

[Randall]

How close to FMV does the rent need to be before this kicks in? I have a couple who rent the other half of their two-family house to family members. Rent is _almost_ FMV -- basically, it _was_ when they first rented, and the landlords just haven't raised their rate very much because they are good tenants (aren't noisy, don't trash the place, keep an eye on the other side when the owners are away, etc). Seems there is a grey area between what most landlords do to keep desirable tenants and giving family a break. Any guidelines from anyone on where that line is?

Catherine

I don't have a cite, but I think there's a prevailing viewpoint that renting to a family member at about 20% below FMV is acceptable, the reasoning being that they will take better care of the property, etc. You might want to follow up some research on that angle.

[joanmcq]

There was a court case where the judge allowed that much of a discount with that reasoning, but it is not a hard and fast rule, nor is it a safe harbor. I would document, document, and document if you are going to claim that.