Rental income below fair market value

[joanfukai]

Where do I report rental income if it is below fair market value?

[NicoleU · Accepted solution]

You may claim it as income. Per 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. 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."

Per the IRS, you would report your not-for-profit rental income on Form 1040, line 21, Other Income.

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), real estate taxes, and casualty losses.

Claim your other rental expenses, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23.

For more information, please see this IRS link: https://www.irs.gov/publications/p527/ch04.html#en_US_2016_publink1000219164

[gr2ry]

answered as if were using a hard paper form 1040. Turbotax doesn't work this way. Please answer as if using the software.

[caryw]

Agreed with commenter above. I'm in this situation and have no idea where to report this within the online software either.

[user72682]

Rent

[formillionz76]

Go to Less Common Income, then Misc. Income, then Other Reportable Income

[taxpayer15]

thanks for the response, but I still didn't understand how does it matter that rent was or was not fair market. This might particularly apply to me because two of my properties have rent stabilized tenants, and I am charging rents lower than what's common in the neighborhood

[johnghoover]

Schedule A line 23 does not exist

[TonySF]

My rental rates are suppressed below market rates because the county has tight rent controls, allowing annual increases at only 60% of CPI.  As such, are the apartment owners supposed to be penalized further by losing  deductibility of expenses in Fed taxes? 

[allylu]

See the response at this link:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/i-have-a-house-that-w...

[allylu]

And what is also concerning is that the software does not seem to work even when you put the deductions related to real estate rented below FMV in this field.  The response notes, "You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income."  Amounts I entered totaled well over 2%, and the software did not allow the deduction.

[allylu]

I think these responses that suggest the expenses can be deducted are incorrect.

I was including these expenses in misc itemized deductions, but this is what Pub 529 says: "...you can no longer claim any miscellaneous itemized deductions, unless you fall into one of the qualified categories of employment claiming a deduction relating to unreimbursed employee expenses. Miscellaneous itemized deductions are those deductions that would have been subject to the 2% of adjusted gross income limitation. You can still claim certain expenses as itemized deductions on Schedule A (Form 1040, 1040-SR, or 1040-NR) or as an adjustment to income on Form 1040 or 1040-SR." 

If you check Sch A itemized deductions and 1040 adjustments to income, those are very specific.  Even line 16, Other Itemized Deductions, can include only what is listed in the instructions.  Per the instructions, "Only the expenses listed next can be deducted on line 16."  I don't find any mention of expenses related to real property rented below FMV.

But you are required to report the income, although there is NO profit.  How is that fair?

[allylu]

And one more piece of supporting documentation:

"If you do choose to rent the property to a friend or relative below market value, just be sure to reflect this in your tax return. You will still be able to claim property taxes on the property, a well as your mortgage interest if the rental is your secondary property."

There is no mention of claiming mortgage payments or any other expense "up to the amount of the income."  Source: https://laporte.com/knowledgecenter/tax-services/tax-consequences-of-charging-below-market-rent 

[allylu]

And at this link

https://finance.zacks.com/deduct-expenses-renting-children-8638.html

you can find the direct opposite advice...that you can claim deductions up to the amount of the income, so I don't know which is correct.

[Critter-3]

@allylu 

You are posting to a thread that is very old ... the june 2019 dates were applied when the old forum was migrated to this current forum so you cannot go by the dates. 

Under the new rules you cannot claim expenses on a not for profit rental on the Sch A from 2018 to 2026 (or until congress changes the rules again).  The income is reported on the current Sch 1 line 8 ( old 1040 line 21) ...

Follow these directions to post 1099-Misc, box 3 income not subject to self-employment taxes.

• Down the left side of the screen, click Federal.
• In the center of the screen, click Income & expenses.
• On the screen Your income and expenses, scroll all the way down to the last section, Less Common Income.
• Click the Start or Update button for the last topic, Miscellaneous Income, 1099-A, 1099-C.
• On the next screen, Let's Work on Any Miscellaneous Income, scroll down and click the Start or Update button for the last topic, Other reportable income.
• The next screen asks, Did you receive any other taxable income. Click Yes.
• On the next screen, Other Taxable Income, enter a description and the amount. Click Continue.
• On the next screen click Done.

The income will be reported on Schedule 1 line 8 with the description that you entered.