Trust owned house income and deductions

Forum|Forum|4 months ago
March 10, 2026
1 reply
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I am trustee for my parent's trust since their death. Their home was titled in their revocable trust (now irrevocable sub-trusts for the benefit of myself and my brother). I have allowed my brother to live there. Since by law I am technically the owner as trustee, my insurance agent told me that in order to get homeowners insurance, the house is considered trust business property, and I would need a rental agreement between the trust and my brother. So, I created a lease for him but only charge him $1/year. I pay the property taxes, water bill, insurance, and repairs from my brother's sub-trust. Since the rental income is only $1/year, can I deduct the expenses that I mentioned on Schedule E which reduces the amount of income that is reported as being distributed to my brother or should I just count all of these expenses as distribution for the benefit of my brother since they are all originating from trust income?

TurboTax Business Windows

M-MTax

Level 15

What are the exact terms of the trust, particularly with respect to the use of the home?

A trust splits legal and equitable ownership of trust assets with the trustee holding bare legal title and the beneficiaries holding equitable title (they enjoy beneficial ownership).

Regardless, since the home is being used for personal purposes (essentially since the $1/yr rent is far less than fair rental value and is merely nominal), expenses are not deductible with the exception of real estate taxes and even those have limitations.

What would seemingly be fair is to make a distribution to your brother to cover any and all expenses relating to the property since he is currently residing there basically free of charge. However, the terms of the trust may dictate a different treatment.