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Level 1

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

 
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Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

In my opinion you have a second home you let family live in and they help with some of the costs ... I would not report this help as income at all.  

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Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

"Can I depreciate and claim losses on the house?"

 

Not unless your sister uses the home as her main home and $350 per month is considered to be a fair rental price.

 

See https://www.irs.gov/taxtopics/tc415

 

Otherwise, each day you rent to her at below fair rental value is considered a day of personal use.

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Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

Since you are renting to family at well below FMRV, expenses that exceed the rental income are not deductible and you can not carry them forward. You just "lose" them permanently and forever.

At $350/mo you have $4,200 a year of miscellaneous unearned income. I wouldn't bother converting this to a rental at all. Just report the income for what it is and pay your taxes on it. an extra $4,200 a year isn't going to make that much of a difference in your tax liability anyway, and it's not worth the effort of dealing with this as rental income anyway.

Besides, since rental property has to be depreciated, the depreciation recapture when you sell the property in the future will have a huge negative impact on your tax liability in the year you sell. So it's not worth the effort.

 

 

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Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

In my opinion you have a second home you let family live in and they help with some of the costs ... I would not report this help as income at all.  

View solution in original post

Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

I agree with @Critter; the scenario can be treated as a second home with a close family member sharing expenses.

 

Regardless, you cannot treat the home as a rental (or convert it to a rental) unless you are charging fair rental value.

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Level 13

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

If you itemize, you can claim the property taxes that you paid on Schedule A.  

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Level 1

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

My sister is on social security and unable to afford her previous mortgage payments therefore I am not making any profit on this house but it is allowing her to stay in her home. Thanks for the advice. 

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Level 15

I purchased my sister’s home and paid it off allowing her to stay as long as she wants for approx $350 a month. Can I depreciate and claim losses on the house?

My sister is on social security and unable to afford her previous mortgage payments therefore I am not making any profit on this house but it is allowing her to stay in her home

This sounds more like you are only charging her for the cost of the utilities each month. So I'd recommend several things.

 - Treat it as a 2nd home and be done with it. All you can claim on this home is the property taxes on the SCH A and that's it since there is no mortgage.

 - have her put the utilities in her name. She can do that with no problem even if she doesn't own the home. The utility providers could care less who the send the bill to, so long as it gets paid.

Doing the above would then negate you having to collect "any" money from her and therefore doesn't have the slightest possibility of putting you an an ackward possition with the IRS if (lord forbid) you should ever get audited.