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Renting a house to our son

We purchased a home to rent to our son at less than FMV, as his primary residence. The IRS considers this personal use.  I know that income is suppose to be reported on Schedule 1 and the property tax and mortgage interest, up to the rent received, is to be reported on Schedule A.  We do not itemize deductions.  Where do I instead report the mortgage interest and property taxes, or do I lose those deductions because I am taking the standard deduction?

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10 Replies
ThomasM125
Employee Tax Expert

Renting a house to our son

You can only deduct the mortgage interest and property taxes as itemized deductions when you aren't renting the property to make a profit. Since you aren't itemizing, you are not allowed to deduct the expenses. Here is an excerpt that addresses this issue from IRS Publication 527: IRS Publication 527

 

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Renting a house to our son

Thank you.  In 2024 we will have a small profit, with limiting deductions to interest and taxes.   Will it then still be treated as not for profit, since it will be rented to our son at less than FMV?

Vanessa A
Employee Tax Expert

Renting a house to our son

As long as it is rented to your son at less than FMV, it will be considered personal use.  You would need to raise the rent to FMV for that to change. 

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Renting a house to our son

Thank you.  Yes, I understand that but since there will be a small profit, do I still put it on Schedule 1 as not for profit, or do I put it somewhere else?

Vanessa A
Employee Tax Expert

Renting a house to our son

Yes, you will still report it on schedule 1. Whether or not you make a profit, does not determine how it is reported.  The determining factor on how it is reported is based on whether or not it is considered personal use.  And one of the definitions of personal use is renting it below FMV to a family member.  So unless you would raise his rent to FMV, it would be reported on Schedule 1. 

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Renting a house to our son

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, as it will not match the 1098 that was sent 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 the interest and taxes on that property exceed the income?

MarilynG1
Employee Tax Expert

Renting a house to our son

Enter the Mortgage Interest and Property Tax each year, whether you itemize deductions or not.

 

Sometimes these deductions help on your state return, even if not being used as Itemized Deductions on your Federal return.

 

It doesn't matter whether the income is more or less than the mortgage interest/taxes, as you are reporting the income you receive each year as 'Other Income' so it is not tied to those items.

 

@JanK12 

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Renting a house to our son

It does matter.  When you are renting to a family member for less than Fair Market Value, the IRS deems it as "personal use" and you can only deduct mortgage interest and property tax up to the amount of income you receive.  You can not have a loss on the property.  I need to know how, in Turbotax, I can adjust the interest to a lessor amount and eliminate the tax amount from what is reported on the 1098 for that property.  I haven't been able to figure out how to get this adjustment into Turbotax.

MarilynG1
Employee Tax Expert

Renting a house to our son

You can adjust the amount of Mortgage Interest you enter in TurboTax and/or eliminate the real estate tax entry to be equivalent to amount of rent received.  Just keep documentation to show why you made the adjustments if needed. 

 

 

@JanK12 

 

 

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Renting a house to our son

Thank you.  That was my first thought as far as how to handle it, but suspected that it would trigger contact from the IRS, which I would prefer not to have to deal with.  If that is all that can be done, then I will just have to deal with it if they contact me.

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