Renting at Fair Market Value

[Mlev61]

I may be moving to my fiancés home.

If I do, I will rent three of my four bedrooms to my daughter & grandkids. 

One bedroom with private bath will always be available for me to visit, determine repairs to be made, etc.  

Fair Market Value is approximately $2050 for the entire home and property. 

If she’s paying $1550 plus all utilities for three of the four bedrooms, does this fall into the Fair Market Value range?

[Anonymous_]

The general rule is less than 20% of fair rental value is less than fair rental value.

If you've reserved the premises for yourself, this could easily fall into the personal use category where you could not deduct typical rental expenses, such as utilities, repairs, etc.

[Mlev61]

Thank you. Upping their rent a bit.  

[Mike9241]

That 20% may be based on the following tax court case  Bindsell, TC Memo 1983-411. In another tax court case the property was deemed 100% personal use. Rental was $500 when fair rental was $600 based on a Reality firm's estimate. Jackson, TC Memo 1999-226. There are many other court cases with varying amounts of discounts allowed.  However, that $2050 you cite probably can be reduced by the fair rental of that bedroom (probably using the area of the bedroom to the total area of the house). 

This may fall into the rules that apply when you are renting out part of the home (assumes you'll not be using other parts of the house - akin to a motel, hotel or B&B. In this situation, expenses would have to be prorated between the area used by you (personal - non-deductible)  except for the pro-rata portion of taxes and mortgage interest and the rental portion - fully deductible. the allocation is usually made based on square footage.  

https://www.courtlistener.com/opinion/4555072/jackson-v-commissioner/ 

[Mlev61]

If my daughter rents my home at below fair market value, and I come and stay with them four days a month, because I have doctor visits, etc., Would this be considered a second home and not a rental property? All of my furnishings, will still be in the house. Do I have to claim the amount they pay for utilities and rent as income?

I’m going to sell it in five years anyways after my grandson, graduates high school. 

[Vanessa A]

Yes, that would be considered a second home for you.

No, you do not have to claim the amount they pay as rent or utilities since you are renting it to her at below market value so it would be considered personal use property and shared expenses instead of rental income.