Renting a house to our son - Part 2

[JanK12]

We purchased a property in June of 2023 to rent to our son at less than Fair Market Value.  I was able to get the income onto Sch 1, Line 8j.  The 1098 for this property was entered as a second home.  The interest exceeds the income. I know I can’t change the amount of interest or delete the taxes from the 1098 section, because it would then not match the 1098 which was submitted to the IRS.  How do I lower the amount of interest and delete the taxes in Turbotax so the deductions for the property do not exceed the income.  How do I trigger Turbotax to ask me about this next year?  Do I mark the property in some way so Turbotax automatically does the calculation if in the future if the interest and taxes on that property exceed the income?

[Mike9241]

there are two court  cases depending on which applies determines how to handle the mortgage interest and taxes

1) Bindsell TC Memo, 1983-411

here rental was less than FRV. The tenants, the owner's parents, were expected and did take unusually good care of the property so the tax court discounted the FRV by 20%. However, the owner charged less than the discounted rate that the TC came up with. so deductions were denied.  

However, it would seem, had the amount charged by the owner been at or above the discounted amount then the rent and expense would have gone on schedule E.

2) Jackson, TC Memo1999-226

here too rental was below FRV and rented to the parents. nothing is mentioned about any mitigating circumstances. Rent had to be included in income and no rental deduction for the expense. I assume that taxes and interest as a second home could be taken on schedule A.