college-age child as my tenant?

[bok2]

I'm trying to figure out the best way (economically) to handle a property that I've rented out and reported as rental income for the past 9 years.  It's a four bedroom in a college town, and every year four individuals have rented it, jointly on a shared lease. 

Beginning in June 2024, my son (my dependent) will be one of the four occupants of the house.  The others in the group will pay market rent.  I pay for my son's housing while he's in college.

Should I do individual leases for three of the four bedrooms, with shared access to common areas, and then limit deductions to 75% of expenses?  Or would I need (or would it be better financially) to include my son as one of four tenants and report as income his portion of fair market rent?  Not worried at all about renting to my own kid -- just not sure of the legal requirements/implications.  Thanks!

[Anonymous_]

I'm going to page @AmeliesUncle for this but I suspect Section 280A might be applicable, so if your son pays fair rental value and uses the house as his principal residence, then you can treat 100% of the house as a rental.

Otherwise, the 25% would constitute personal use.

[bok2]

Thanks! -- just to clarify, my son (a college student) won't actually pay anything, it would be me paying.  So I pay myself that rent? Or include the equivalent in the total rent received amount?

B.

[Anonymous_]

I'll wait for a response from @AmeliesUncle, but I think the larger issue is whether your son uses the house as his principal residence.

[AmeliesUncle]

Unfortunately, it is going to mess things up.

If your son is not paying Fair Market Rent, then many of the deductible expenses would be limited to the space that is EXCLUSIVELY to the paying tenants. 

For example, let's say that four bedrooms are each 10% of the space (40% total) and the 'shared' space is 60% of the house.  In that scenario, you would be limited to only using 30% of most of the deductible expenses (the three bedrooms your son does not use).

You may be able to use 75% for some expenses that would be used on a 'usage' basis.  For example, it would be logical to allocate 75% of the water/sewer bill to the tenants.  But things like mortgage interest, real estate tax and insurance would be limited to the amount used exclusively for rental (30% in my example).