Rent control and Fair rental price

[739Kubatek]

I recently started renting out a duplex in Oakland. One of the tenants has been there for several years and pays far below market rate. Is that still considered "fair rental price" or do I count that as personal use, and if so, then are all the days technically considered personal use days?

[PatriciaV]

Yes, if you charge less than fair market rent, the property becomes a "second home" and you can deduct only property taxes and mortgage interest. You still report the income as "Other Income," however.

If you occupy the other half of the duplex, then the entire property is personal use only. You would not report this property on Schedule E as a Rental until you can charge fair market rent.

[Opus 17]

I'm not sure that renting at a rent controlled price counts as personal use.  

The IRS states, "A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area."

Here, I would interpret "other properties that are similar to yours" to include "other properties under rent control."  I don't think rent control means you have to consider the property as person use or "under market value" since the market is determined by the rent control law instead of the fair open market.

@Anonymous_ 

@Carl 

What do you think?

[Anonymous_]

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@Opus 17 wrote:

Here, I would interpret "other properties that are similar to yours" to include "other properties under rent control."...

@Anonymous_ 

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For what it's worth, that would be my take on this issue; fair rental value would have to be considered with respect to other, similar, properties that are also subject to rent control.