Rental Property and fair market rent


D

darcijj

I own a duplex and rent the other side out to my parents.
When my mom retired, I lowered the rent to $150.00 a month.
Since I have a HUD lien on the house the maximum rent i
would charge a stranger is $350.00. So it is fair to say it
is under fair market value. This is what the IRS says:

Fair rental price. A fair rental price for your property
generally is the amount of rent that a person who is not
related to you would be willing to pay.

Are they saying family members are different than general
public and I can deduct expenes even though it is below fair
market rent?

How do I treat this on my return? What do I declare and
what can I deduct, i.e. taxes, interest. etc. I was
deducting half of those expenses prior to this year.

Any clarification on this would be appreciated.

Thanks!
 
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A

Arthur Kamlet

darcijj said:
I own a duplex and rent the other side out to my parents.
When my mom retired, I lowered the rent to $150.00 a month.
Since I have a HUD lien on the house the maximum rent i
would charge a stranger is $350.00. So it is fair to say it
is under fair market value. This is what the IRS says:

Fair rental price. A fair rental price for your property
generally is the amount of rent that a person who is not
related to you would be willing to pay.

Are they saying family members are different than general
public and I can deduct expenes even though it is below fair
market rent?

How do I treat this on my return? What do I declare and
what can I deduct, i.e. taxes, interest. etc. I was
deducting half of those expenses prior to this year.

Any clarification on this would be appreciated.
Renting to a Related Party at less than Fair Market rental
value means you cannot deduct more than your income.

In such a case your income goes on Form 1040 Line 21 and
your expenses, not exceeding income, goes on Schedule A Line
22, subject to reduction by 2% of AGI.
 
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B

Benjamin Yazersky CPA

darcijj said:
I own a duplex and rent the other side out to my parents.
When my mom retired, I lowered the rent to $150.00 a month.
Since I have a HUD lien on the house the maximum rent i
would charge a stranger is $350.00. So it is fair to say it
is under fair market value. This is what the IRS says:

Fair rental price. A fair rental price for your property
generally is the amount of rent that a person who is not
related to you would be willing to pay.

Are they saying family members are different than general
public and I can deduct expenes even though it is below fair
market rent?

How do I treat this on my return? What do I declare and
what can I deduct, i.e. taxes, interest. etc. I was
deducting half of those expenses prior to this year.

Any clarification on this would be appreciated.
You should look into the vacation home rules.
Depending on your facts and circumstances, it could be
considered a 2nd personal residence.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
 
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H

Harlan Lunsford

darcijj said:
I own a duplex and rent the other side out to my parents.
When my mom retired, I lowered the rent to $150.00 a month.
Since I have a HUD lien on the house the maximum rent i
would charge a stranger is $350.00. So it is fair to say it
is under fair market value. This is what the IRS says:

Fair rental price. A fair rental price for your property
generally is the amount of rent that a person who is not
related to you would be willing to pay.
This merely defines how FRV (fair rental value) is
determined.
Are they saying family members are different than general
public and I can deduct expenes even though it is below fair
market rent?
No, only that IF you rent it for less than FRV, then your
deductions are limited.
How do I treat this on my return? What do I declare and
what can I deduct, i.e. taxes, interest. etc. I was
deducting half of those expenses prior to this year.

Any clarification on this would be appreciated.
looks like you can deduct the real estate taxes at least.

ChEAr$,
Harlan Lunsford, EA n LA
 
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