"Rent" to Daughter -- Tax implications

[militaryman]

I have a 2 BDRM 2 Bath Condo in city where I work and another SF home an hour away that I split my living between. (My DW stays at the SF home always)

I was thinking to allow my DD and her husband to live at the Condo and as long as they pay the property taxes, utilities, and HOA dues. If they pay these items directly (not paying me and then me paying the entities) would the IRS consider them as "renting" from me? I would continue to split my time between the Condo and SF Home.

Thanks

 

[Aerides]

While your situation is different, you might want to peruse this thread. Not for the money/tax stuff, but relationship stuff. Especially if she and your SIL aren't already knocking at your door and asking. And even if then.

https://www.early-retirement.org/fo...ldren-get-into-a-home-105009.html#post2468019

 

[Dash man]

We have our two sons each living in townhomes we own with their families. One pays rent in an amount equal to property taxes, insurance, HOA and sewer expenses. The other doesn’t pay anything (they’re supposed to, but that’s another story). I don’t even consider these properties for income tax purposes. Maybe I’m wrong, so I’m interested in what others may say.

 

[militaryman]

While your situation is different, you might want to peruse this thread. Not for the money/tax stuff, but relationship stuff. Especially if she and your SIL aren't already knocking at your door and asking. And even if then.

https://www.early-retirement.org/fo...ldren-get-into-a-home-105009.html#post2468019

Thanks, yeah I get it ...I would only be staying there two nights a week. They ARE asking whether I would be willing to do it . They are both educated young professionals and we all respect each other immensely and have a wonderful relationship.
It would be a very flexible situation. Might last a few months or a year I'd imagine. They are at the end of their current lease and if it didn't work out they could just rent a different place.

 

[OldShooter]

If they are paying only landlord expenses that would be deductible to you, then income=expenses and its an accounting wash. I would check with a CPA to make sure our uncle sees it the same way.

Edit: Of course you could also set it up as a full blown rental property, book depreciation, etc. That does not sound like the route you want to take but the CPA could advise.

 

[cathy63]

I have a 2 BDRM 2 Bath Condo in city where I work and another SF home an hour away that I split my living between. (My DW stays at the SF home always)

I was thinking to allow my DD and her husband to live at the Condo and as long as they pay the property taxes, utilities, and HOA dues. If they pay these items directly (not paying me and then me paying the entities) would the IRS consider them as "renting" from me? I would continue to split my time between the Condo and SF Home.

Thanks

It doesn't matter who pays whom, what matters is how much they pay. What is the fair market rent for the condo? Is it more or less than the prop tax + HOA dues (don't include utilities in your calculation unless it's usual for the landlord to pay them in your area)?

If your DD and SIL would be paying less than the fair market rent, then the IRS would not consider the condo to be a rental property when you do your taxes. You have to treat it as a second home. I think an IRS auditor would say that you should report the payments as misc income, which is taxable at your ordinary marginal rate, but it's something that would be very hard for them to find out about, and if it's less than $30K you could also say it's an unreportable gift.

 

[harley]

We had a similar situation, with a townhouse that my daughter and granddaughter lived in. We kept the master bedroom for ourselves when we were in town to visit. She paid us the amount to cover the taxes, HOA, and utilities. We just maintained the place as a second home. I reported the money as Other Income, and had to pay taxes on it, but I was in the 10% bracket at the time so NBD. I'm sure I could have gotten away with not reporting it at all, but we have a fair number of audit flags so I always play it safe.

Later when Son-in-Law moved in and the new DGD came along, they moved into the MBR and we started charging them rent. We still didn't charge full price, so I just reported it as a rental to a family member below fair market value. That meant we couldn't deduct anything or depreciate, but we were fine with that and it only lasted a couple of years before they bought their own place.

 

[kaneohe]

https://www.forbes.com/sites/janetb...rules-for-renting-to-a-relative/#2e789ebb5345

 

[donheff]

Couldn't you keep paying everything and treat the condo as a gift from you and your wife to them - that should easily remain under the gift tax exclusion amount. They could in turn gift you an amount equal to the fees you need covered - also under the gift tax exclusion.

 

[militaryman]

Thanks for all the replies!
Looking more and more like whether:
1. I have them pay the costs associated with the condo directly when bills come (taxes, hoa dues, utilities & insurance)
or
2. I charge them a set amount of rent (that would be much less than market value)

that the IRS would see either the same.

So I'll therefore need to pay taxes on the "income" ---

Anything else looks like a no-go during an audit.

 

[donheff]

Thanks for all the replies!
Looking more and more like whether:
1. I have them pay the costs associated with the condo directly when bills come (taxes, hoa dues, utilities & insurance)
or
2. I charge them a set amount of rent (that would be much less than market value)

that the IRS would see either the same.

So I'll therefore need to pay taxes on the "income" ---

Anything else looks like a no-go during an audit.

i would consult a CPA The whole thing sounds like a net loss to you. IRS gets antsy if you try to take losses against your taxes while charging less than market rent but if you’re not doing that there must be a way to safely ignore the whole thing.

 

[Sunset]

OP
As your intention is not to rent to them like you would rent to a stranger, it's not really a rental in intent. (IRS considered related rental below market value to not be a "real" rental either).

While normally gifting is always thought of as old folks giving, it does apply to the reverse.
They could gift to you say $12,000 or some other number once a year , and you could share the condo, since you are living there part time, it certainly is not unusual for family to share a place.

Alternatively, you could simply share the space, if they pay a bunch of the costs and you pay some (example some food), then its much like family living together, and I would not bother to claim rent vs expenses. Do husbands who own a home (in their name only) charge their DW rent as they share the space.