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sf39wave
New Member

I bought a second home out of state, and am renting to my sister at below market rate, what is the best tax treatment?

 
2 Replies
Rainman12
Level 9

I bought a second home out of state, and am renting to my sister at below market rate, what is the best tax treatment?

Safest/Easiest: Just consider it a second home. Declare any rent paid as 'Other Income - Cash'. For 2018 returns, you can't deduct associated expenses, but you still get Property Tax and Mortgage Interest deductions on a second home.

Second option: Ignore 'rent' paid, if inconsequential. Consider her contributions as family members sharing resources/expenses.
Coleen3
Intuit Alumni

I bought a second home out of state, and am renting to my sister at below market rate, what is the best tax treatment?

 It is considered a Not-For-Profit Rental.  Since you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. You do not therefore, need to depreciate.

Not Rented for Profit

Where to report.   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. If you are filing Form 1040 and you itemize your deductions, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), and  real estate taxes on the appropriate lines of Schedule A (Form 1040). 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.

Presumption of profit.   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit.

More information.   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Pub. 535.

To report:

  • Click on Federal Taxes
  • Wages and Income
    • You may need to click Jump to Full List, Show me everything or I’ll choose what I work on depending upon your situation and the TurboTax version you are using.
  • Scroll to the very bottom; Less Common Income; Click Show more (if start isn’t displayed)
  • Click Start across from Miscellaneous Income, 1099-A, 1099-C
  • At the “Other Taxable Income” screen, enter your description – Not for Profit Rental and then amount of income you received.

 


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