A family member has been renting out my house for all last year and I have been paying the rent can I deduct all of this? and not report this as rental income?

[Patrice]

For determining whether a home is used for rental purposes or for personal use, there are several factors to consider, but the applicable factor in this scenario is whether or not the related family member paid a fair rental price for use of the home. 

Generally rental of your property to family members for less than the fair-rental-value may be considered personal use of a property. If they did not pay the "fair market rental price", then the use of the dwelling unit is considered to be personal use by the owner" and you would not report this as income.

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

However, if you are renting the house at or above fair market value then you would report the income and expenses.  

https://ttlc.intuit.com/replies/3288530

[taxhelper]

"Generally rental of your property to family members for less than the fair-rental-value may be considered personal use of a property. If they did not pay the "fair market rental price", then the use of the dwelling unit is considered to be personal use by the owner" and you would not report this as income."

I am dealing with this very issue helping a family member and I asked a "tax expert" about it and they said all income is reported regardless.  Just curious where I can find support that this income would not need to be reported?

[Carl]

A family member has been renting out my house for all last year and I have been paying the rent

 If you own the house, it's impossible for "you" to pay rent to yourself to live in the house you own. Likewise, you can't be paying rent to yourself for someone else to live in a house you own either. That's taking money out of your left pocket that you've already paid taxes on, and putting it in your right pocket so you can pay taxes on that same money again. So can you provide a bit more insight please? Your statement as worded just doesn't make sense.

[chocobaby14]

Carl - I'm not the OP. BUT, is it true that there's no reporting needed if my 2nd property is being rented by family members for the same price as the mortgage and HOA + insurance? Also, it is definitely less than fair market value. They are just paying for the mortgage, HOA and insurance and utilities they use. I'm not making money off of them. Thank you very much!

[tagteam]

@chocobaby14 

The income should be reported but, per Section 280A(d), every day a dwelling unit is rented at less than a fair rental price is considered a day of personal use by the owner. As a result, the only expenses that are allowed would be mortgage interest, property taxes, and casualty losses on Schedule A.

[Stevetjb]

I don't understand why the income would be reported.  I've been trying to get an answer on this too and by research leads me to believe the income shouldn't be reported.

Publication 527 says: Used as a home but rented less than 15 days. If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function isn’t considered to be rental and it shouldn’t be reported on Schedule E (Form 1040 or 1040-SR). You aren’t required to report the rental income and rental expenses from this activity. The expenses, including mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040 or 1040-SR). See the Instructions for Schedule A for more information on deducting these expenses.

Since days rented at a below fair value price (below market rent) to a family member is not considered a a rental day, then if you rented to a family member for the full year at a below market rate, then none of those days would be considered rental days. Therefore I think it would qualify for the reporting exclusion above. Can you tell me why you think this income should be reported?

[Stevetjb]

Just adding information to my previous question. The below market rent is being paid by my brother for the use of our previous home. We moved, but did not sell the prior home so that we could fix it up.

[Anonymous]

close. the actual answer is that you treat this as your personal residence for the entire year. you do not report the rental income.  the mortgage and real estate taxes are reported in schedule A. 

[meggo90]

Thanks for that info, this applies to me, as well. I'm renting my ADU to my brother and he is paying below market rent, so it sounds like I won't be reporting that as income (in California). Follow up questions: What qualifies as a "rental expense" and how do you deduct that from your taxes? And for "deducting up to your rental income", is that for the year or the month-by-month amount? Example: My brother pays me $900 per month. Would I deduct $900 in "rental expenses" from taxes, or up to $10,800 for the year. Thanks!

[MarilynG1]

If your brother pays you $800 Rent and you pay your landlord $900, you would have a Rental Loss to report, for example, after entering Rental Income of $9,600 and Rental Expenses of $10,800. 

However, if he is paying 'below market rent' this is considered personal use and is not deductible as a Rental Expense. According the IRS, "If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income."

Obviously, it would not help you tax-wise to report Rental Income of $10,800 and Rental Expenses of $10,800, if this applies to you. 

TurboTax asks you this as you go through the Rental Property interview.  

Click this link for more info on Reporting Rental Income/Expenses.

[Ikrama1]

How did you end up reporting the rental  income from a family member that only covers HOA and real estate taxes? 

[Prestrent]

I have a question. I sold my rental and bought another house.  My previous house was a 1031 exchange.  I wanted this house to be also but the realtor didn’t set it up that way so I have a $350,000 profit. I put it all into the new house. I don’t live in it but I rent it to my daughter way below fair market value.  The issue is that her and I are both on the loan and the deed to the house.  Would I qualify for a 1031 exchange with those circumstances? If so, I would sue the real estate company because since I didn’t do the exchange, I had to pay back capital gains on my original house and the profit was around $250,000 so my capital gains for last year comes to $130,000. Please help!!!

[tagteam]

Every day you rent to your daughter at below fair rental value is a day of personal use.

[ThomasM125]

If you received the proceeds of the sale a opposed to them being held by an intermediary, that would invalidate the sale as being considered a like kind exchange. Also, by renting the house to a relative below market value, you are using the house for personal purposes as opposed to business purposes which would also disqualify the disposition as being a like-kind exchange, as it isn't an exchange of business property for business property.