Disabled child receiving SSI benefits and paying rent/cost sharing

[Repoman1984]

Hello:

I have seen variation of this asked many times but don't see a clear answer to our situation.

My son began receiving SSI disability benefits earlier this year. On advice from a special needs attorney we had our son sign an agreement stating he was paying us "rent" (per the attorney).  We sent a copy of the letter to SSI.

In filling out TurboTax I have the option of stating the rent is FMV, and filling out schedule E, so I am including rent as income but offsetting with utility, taxes insurance etc.  I effectively zero out the income with expenses (not exceeding the amount of rent received), which is easily done with our expenses.  In actuality however we are not charging near actual FMV for his room and use of the house.

Another option is saying we are charging below FMV, but it has add the rent as misc income. In this case the only way to offset the income is to itemize, which we do not do (we have no mortgage, and deductions would be minimal, so we take the Standard Deduction.

Am I safe to use Schedule E to list expenses to offset the rental income, even though I am not charging FMV? 

Thank you!

Chris M

Maine

[ReneV4]

No. You should not use Schedule E because it is not considered a rental business.

Since your son likely occupies the unit for the entire year at a below-market rate, you effectively have zero days of "fair rental" use for tax purposes.

Instead, you should list the income as "Other Income". Unfortunately, you would not be able to offset your expenses this way.

Your other option is to charge a fair market rent so that you may then use Schedule E. 

[Repoman1984]

Thank you for clarifying.   I can take the hit and pay the tax this year, because I can't itemize.  Going forward it seems I should change our arrangement to a cost sharing agreement (and send a copy to SS), where I would not have to report the cost sharing as income.  Is that correct?  I found many people saying this was what to do, but the Special Needs Attorney, who we were using last year for estate planning and advice for our son, said we should use a rental agreement.  This is contrary to what I have seen here and from others in a similar situation.

Thanks again!

Chris M  

[AmeliesUncle]

Using an arrangement other than rent will often lower the amount of SSI your son receives, which is why the attorney recommended a rent agreement.

Unless you want your son's SSI benefits to be reduced, either pay the tax on the extra income that you receive or start charging Fair Market Rent.

[Repoman1984]

Thank you for clarifying that for me.