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Old 01-25-2009, 04:43 PM
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Below-Market Rental to Father

I own a 2nd home in NC, currently occupied by my father. He pays well below market value ($300 paid, ~$700 market) because of limited means. Because the house is not rented at full value, I've continued to treat it as a 2nd home for tax purposes (no depreciation). Do I need to count his $300/mo as rental income? It's unclear to me because (1) he's family and the $300/mo falls well below the $10,000/yr "gift" minimum and (2) this is not activity for profit - it's just to help allay the heavy subsidy I'm providing to him. Thanks for your help.



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Old 01-25-2009, 10:40 PM
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Actually, you might benefit by claiming this income as rental income report this on Schedule E. This is because not only can you deduct the property taxes and mortgage interest (as you currently do on your tax return on Schedule A as a 2nd home) but as a rental property you can depreciate your home, deduct repairs and maintence, deduct utilities that you should pay for your father, electricity, gas, garbage, and any incidental expenses associated with this property.

Of course, if your AGI exceeds $150,000, then passive losses are not deductible. At this point, you should talk to your CPA or tax advisor to determine which position to take based on your unique circumstances.

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Old 01-26-2009, 12:36 AM
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I've received conflicting information on that. Found an IRS ruling indicating that below-market rental to parents does not qualify the property as a "rental" and I wouldn't be able to deduct expenses.

It's not a huge deal either way - I have a lot of deductions for the two houses, two kids, and charities (i.e. not a lot of marginal tax savings left). I just don't want to report income if it doesn't really count as such. Thanks.



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