Here is a what if on rental property?


M

miscellaneousmedia

What if a person lets a relative live in their condo, and
they pay, as rent, maybe 1/3 to half of the fair market
value rent. Let's say $1000 a month rather than $2500 with
expenses, like utilities, maintenance, etc. Do they get to
take a business loss at year's end? Limitations? Forms? If
this was done a year ago, can they amend and get a refund?
Just curious.
 
Last edited by a moderator:
Ad

Advertisements

M

Mark Rigotti

What if a person lets a relative live in their condo, and
they pay, as rent, maybe 1/3 to half of the fair market
value rent. Let's say $1000 a month rather than $2500 with
expenses, like utilities, maintenance, etc. Do they get to
take a business loss at year's end? Limitations? Forms? If
this was done a year ago, can they amend and get a refund?
Just curious.
You've got a problem with the deductions since this was a
family member/relative and less than FMV rent. See a
competentant tax professional ASAP.

Rgs,

Mark
 
Last edited by a moderator:
G

gcrofton

If a relative lives in your condo and pays you rent below
the fair market rent, the property is considered a personal
use property. For a personal use property you report the
rent you receive as income, but can not claim any expenses
including utilities, maintenance or depreciation.
 
Last edited by a moderator:
M

miscellaneousmedia

No thoughts. I understand the issue is "intent" to make a
profit. What if there was no intentto make a profit, just
helping out a relative, for instance. Where does the income
go, even if it doesn't cover costs? Rental Loss or not?
 
Last edited by a moderator:
M

mytax

Hi, I am an EA and retired from IRS...My answer to the
related party rental is that it falls within the limitations
on loss under code section 280A...to summarize, no loss can
or will be allowed. Without getting into to detail, just
know that expenses can only be allowed to the extent of
income derived from rents...
 
Last edited by a moderator:
S

Steve Pope

What if a person lets a relative live in their condo, and
they pay, as rent, maybe 1/3 to half of the fair market
value rent. Let's say $1000 a month rather than $2500 with
expenses, like utilities, maintenance, etc. Do they get to
take a business loss at year's end? Limitations? Forms? If
this was done a year ago, can they amend and get a refund?
Just curious.
The IRS might impute rental income at the market rate of
$2500/month, and might consider $1500/month to be a gift
(which at $18000/year, also incurs gift tax).

Steve
 
Last edited by a moderator:
Ad

Advertisements

T

TaxSrv

Steve Pope said:
The IRS might impute rental income at the market rate of
$2500/month, and might consider $1500/month to be a gift
(which at $18000/year, also incurs gift tax).
IRS tried hard to litigate below-market interest loans to
corp officers. There, there is an economic benefit in a
compensatory setting. Courts disagreed as to imputing
income. Called it "phantom."

Here, the tenant is receiving an economic benefit, but with
no transfer, no gift for tax purposes. Only in concept, it
is a gift. The landlord is receiving nothing but the warm
feeling of helping out family, and actually has an
(nondeductible) economic loss.

Fred F.
 
Last edited by a moderator:
Ad

Advertisements

S

Stuart Bronstein

TaxSrv said:
"Steve Pope" wrote:
IRS tried hard to litigate below-market interest loans to
corp officers. There, there is an economic benefit in a
compensatory setting. Courts disagreed as to imputing
income. Called it "phantom."

Here, the tenant is receiving an economic benefit, but with
no transfer, no gift for tax purposes. Only in concept, it
is a gift.
To the extent it is below market rent, it is clearly a gift.
It is given to a family member for no reason other than
generosity. Under the circumstances it would be very
unlikely for the tenant to have to recognize imputed income.
The landlord is receiving nothing but the warm
feeling of helping out family, and actually has an
(nondeductible) economic loss.
Right. And because it's a gift to a family member, it's not
treated as a business transaction, so he gets no deductions
at all.

Stu
 
Last edited by a moderator:

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top