Rental Property

[russelldg]

My son and his wife are renting our second home. In September of last year, they started to pay rent but below the fair market value. How would we report this income? We also had expenses and need to report them as well. 

Thank you.

[xmasbaby0]

If you are renting to a family member below fair market value, you cannot use the property as a rental on your tax return.  You have a second home.  You can enter mortgage interest, property tax, and loan origination points.

[russelldg]

So, are you saying that I don't have to report the income?

[russelldg]

I'm not claiming any depreciation, just expenses.

[xmasbaby0]

You cannot claim expenses since you are not able to enter it as a rental property.  And, no, you do not enter the rent since you are renting below market value.   You just have a family cost sharing arrangement.

@tagteam  ??    @Carl ??

[russelldg]

Thank you.

[KrisD15]

Additionally

If you rent your property without the intent to make a profit, the rent received is "Other Income". 

There was a time when a Taxpayer had an option to enter "Miscellaneous Deductions" on Schedule A, and expenses for a "not-for-profit" COULD be claimed up to the amount of the rent income. (No loss may be carried forward.) 

However, Miscellaneous Deductions are no longer available so expenses cannot be claimed. 

Property tax and Interest may be claimed regardless of this renting not-for-profit.

How you address your situation depends on how you address your situation-

     Are you renting below market? Claim the rent on Schedule 1 as Other Income. Claim what you can in interest and taxes paid on Schedule A.

     Is your son simply staying in a family house and contributing to the family? There may not be a need to claim anything, as stated above. 

If your son uses the rent expense as a deduction, perhaps by claiming a "Home Office", you would need to claim the rent as income. 

According to the IRS:

“If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Where to report. Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8j. “

@russelldg 

[russelldg]

Thank you for your response. My daughter-in-law is a traveling MRI tech and is reimbursed for her rent, so she will most likely claim it on her taxes. So, in this case, I would claim the rent as income and I could only deduct expenses up to the amount received for rent? Is this correct?

[PattiF]

Yes, you would claim the rent as other income and only deduct expenses up to the amount that is received for rent. That is correct.

@russelldg