Rental Income paid from one spouse to another... before the wedding!

[operaflute]

Background Information:

1) I own a duplex.  I live in one half, and rent the other.

2) For the 2022 tax year, my beau (not yet husband) "rented" (at a "fair rental price") the rental half of my duplex to use as an occasional workspace. (He never ended up using it.) FWIW, we weren't (and still don't) co-habitate.  He has his own house.

3) Beau and I married in April, 2022. Yay!  According to tax law, we're considered married the whole year, which means my husband was paying me rent.

4) In Dec, I finally convinced my once-beau-now-husband that our rental arrangement was financial nonsense, and I got a real tenant. Said real tenant rented for 13 days at the end of the year (and on into 2023). So, the "real" tenant rented the property. approximately 4% of year.

Questions:

1) I don't claim  rent I rec'd from my spouse, as income right?   That would seem weird, because then that portion of money is taxed twice: one as his income, then again as my income.  If the answer is "no, you don't count this as rental income," proceed to next question!
2) I'm calling that half of the duplex vacant for all but those 13 days/4% in point 4.  My beau didn't use it for any purpose (if he HAD used it, it would have been for business, not personal use), it was never furnished, the water was nearly always turned off unless it was being cleaned, and I never used the space.  Am I correct?

2) If I AM correct in Question 1, do I have to then only use 4% of my expenses (mortgage, depreciation, water bill, etc.?) vs. claiming expenses as I have done in those years when I had a "regular" tenant?

Please note: I am NOT NOT asking if TT will do this automagically. I am asking if I use all the associated expenses or only 4% of them.  I have always calculated the rental % of expenses that apply to entire property  myself ( ie, % of total duplex rented) myself, for other reasons.

Thank you!

Paula

[KrisD15]

This is a bit of a complicated scenario and could be viewed subjectively. 

Tax law, like any law can be interpreted differently by different people. 

For example, it might be illegal to  jaywalk, but would someone get a ticket if they did it to grab a child that was in the street?

My observations are as follows:

1) I don't claim  rent I rec'd from my spouse, as income right?   That would seem weird, because then that portion of money is taxed twice: one as his income, then again as my income.  

You say you rented the space to your then-boyfriend which makes me think, well, that you rented the space to your then-boyfriend.  In that case, what he paid was rental income. 

The fact that you married later that year wouldn't necessarily matter. A husband could pay his wife as an employee or as a contractor and the income and expense wouldn't change because they are married. On the other hand, if you were to give your little brother twenty dollars for lunch after he fixed your car, no one would expect your brother to claim that as income on his tax return.

2) I'm calling that half of the duplex vacant for all but those 13 days/4% in point 4.  My beau didn't use it for any purpose (if he HAD used it, it would have been for business, not personal use), it was never furnished, the water was nearly always turned off unless it was being cleaned, and I never used the space.  Am I correct?

No, the problem with this thinking is - if it were a rental, it would need to be AVAILABLE.  It sounds like it was not available (to anyone else) because it was being rented/reserved by your then-boyfriend.  I guess you could consider it as not a rental at that time, but it wouldn't be a "vacant rental"

"My beau didn't use it for any purpose (if he HAD used it, it would have been for business, not personal use),"

This is an important statement. If your then-boyfriend is reporting anything he paid for this space as an expense, you would need to claim the same amount as income. 

If I AM correct in Question 1, do I have to then only use 4% of my expenses (mortgage, depreciation, water bill, etc.?) vs. claiming expenses as I have done in those years when I had a "regular" tenant?

If you want to NOT claim rent income when your then-boyfriend was giving you money monthly, you can't claim it was a rental at that time. 

If you had this rental before the boyfriend reserved it, (and it sounds like you did)  it was treated as your rental. 

If you want to "change" from renting to him to just letting him use your personal property, you would need to report that the rental was converted to personal use at that time OR that your rental was also used as a personal residence and adjust the expenses for that personal use. 

Reporting that it was converted can be complicated. 

The depreciation would need to be "recaptured" and when the rental was put back into service, the basis would need to be adjusted. 

If you don't claim the money that passed from your then-boyfriend as "not-rent", I suggest you edit your property in TurboTax and claim that the property was also used for personal purposes. If you do this, be sure you don't claim it was used as your personal residence on the next screen, or, since the rental days for 2022 were less than 15, the program will tell you not to claim any income at all. 

[operaflute]

Thanks for your thoughts on this.  Ironically, it may be that if I include his payment to me in my rental income, it may not really affect our tax liability that much, though I've yet to make the second pass through my taxes, with just these sorts of edits.

FWIW, I believe I failed to mention that he is NOT taking his payments to me as a business deduction.