House rented below fmv.

[Ranger]

I am looking for verification on the treatment of a house rented below fmv to family members (daughter and husband). The house was rented to them for the whole year. The worksheet and software both disallow insurance and property taxes but allows depreciation.

Does that sound correct? Can disallowed property tax be deducted on Schedule A?

Thanks for any comments you might have.

[Pacun]

Rental of the property to a related party is a personal use unless a fair rental is charged. So you cannot depreciate it. This could be their second home and take the deduction on Schedule A.

This is regarding a beach house (or any other) that you rent and use it for, let's say, 2 months.

"In applying the expense limitation rules for significant personal usage, interest, taxes and casualty

or theft losses must be deducted first from gross rental income, then expenses not involving adjustments to

basis, and finally expenses involving adjustments to basis. Otherwise, a taxpayer could circumvent the loss

limitation by deducting these amounts as itemized (personal) deductions and offsetting the rental receipts with such expenses as depreciation, utilities, and repairs."

[OldJack]

>>Rental of the property to a related party is a personal use unless a fair rental is charged. So you cannot depreciate it......expense limitation rules <<

I believe this is mainly when there is a loss on the property and if a profit this would not apply. And it would still depreciate but may not be deductible.

[Bees Knees]

None of the utilities, repairs, or depreciation are allowed when the rental is below fair market value, even if rent exceeds expenses.

Use of a dwelling unit by any individual who pays less than fair rental value is considered personal use by the owner, and therefore, no expenses attributable to that period of rental are deductible. Rental income must nevertheless be reported as income [iRC §280A(d)(2)].

Vacation home (mixed use) rules that allow deductions for utilities, repairs, and depreciation up to the amount of rental income only apply if there is some rental use.

In Jackson, T.C. Memo. 199-226, the rent charged was determined to be below fair rental value the entire year. All expenses (with the exception of interest and taxes deductible on Schedule A) were disallowed because none of the use was considered rental use, even though the taxpayer had to pay tax on the rental income.

[joanmcq]

The income is reported as 'other income' on line 21. And yes, no expenses are allowed.