@Rob1235 wrote:
Thanks for the info, but does FMV have a a range... If that reference is that strict, I should have been raising his rent every week regardless of the lease or its becomes personal use. Also, when I read the reference you sited is talks about the FMV at the time the lease is initiated. So this tells me I don't need to adjust the rent until the lease is up and when I renew the lease it needs to be adjusted to fair markety value at that time. Am I reading this corectly? The FMV is preserved until the lease expires? Thanks in advance 🙂
Do you have a signed lease with a fixed rent and definite end point? In that case, you will re-determine the FMV when the lease is renewed. If you don't have a signed lease, then you probably have a month-to-month tenancy under state law, and that would mean you have to adjust the rent every month.
There is no prohibition against renting to family at below FMV. What happens is, you lose the ability to deduct expenses if they are more than your rent, so the rental becomes less profitable, but do you really want to make a profit from family?
For example, if your expenses are $1600, then you can only deduct $1600 of expenses no matter whether you charge $1700 or $2400, so adjusting the rent to FMV will not change your taxable income or deductions. If your expenses are $2800 and you rent at $1700, you can deduct up to $1700 of expenses and you lose the rest of the deduction. If you rent at FMV, you can deduct the entire amount of expenses.
Bottom line, sometimes (but not always) renting at FMV will allow you to show a deductible loss even though you have positive cash flow. If you rent below FMV, your expenses are capped at the amount of rent and you can't take a deductible loss. But there are other reasons to rent to family besides maximizing profit.
