Hi, I will be taking over my parents home that they used to live in and turning it into an investment property by renting it to a family for 1 year. Do I have to report the rental income to the IRS? How will they find out if I don't and do I have to even if I don't make a profit and take a loss on it each month?
Thank you
2006-10-31 00:04:10 · 7 answers · asked by unhappy 1 in Business & Finance ➔ Renting & Real Estate
Ok but my question is... I know we should report it but does everyone do it? And can they get away with not reporting?
2006-10-31 00:14:36 · update #1
well, yes
just like you have to report any wages you earn
2006-10-31 00:09:34 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Oh man! don't get on the wrong side of the IRS. During the time I had rental properties, they audited me three years in a row. Even though I made little, they checked EVERYTHING. Two years they found an error of about $200, which I had to pay with interest. The last year they audited me, the man picked through every little receipt, down to bandages used on my dying husband, whose medical bills were over $25,000 that year but they studied every one. In the end they owed me....over a thousand dollars. They paid (with no interest) and I've never been audited again, but you can bet I'm being careful.
Keep detailed records of ALL expenses related to the rental property, as well as every cent paid to you. There is money to be made in rental property, but excellent records are a must!
I've always used a reputable CPA who could back up my tax return. My children use a Tax software and do their own. The IRS is not something to fool around with. They can easily ruin you. Being honest is just good insurance, even if it costs you!
2006-10-31 00:22:51 · answer #2 · answered by gmajerisue 2 · 0⤊ 0⤋
I think you best go and look at what the infernal revenue says you have to do here are their links:
IRS: Gain and losses on real property:
http://www.irs.gov/publications/p544/ch01.html
IRS: Estate and Gift Taxes:
http://www.irs.gov/businesses/small/article/0,,id=98968,00.html
IRS: Time to keep records: http://www.irs.gov/businesses/small/article/0,,id=98513,00.html
IRS: Residential Real Estate Rental deductions: http://www.irs.gov/publications/p527/index.html
IRS: 3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses): http://www.irs.gov/faqs/faq3-6.html
IRS: Contacting your local IRS office*: http://www.irs.gov/localcontacts/index.html
I'd take the lady's advice that has been dealing with them since world war II
Buena Suerte
2006-10-31 00:34:58 · answer #3 · answered by newmexicorealestateforms 6 · 0⤊ 0⤋
If you don't make a Profit, you're probably taking a Loss.
To deduct the Loss from your regular income, you have to report it.
2006-10-31 00:28:47 · answer #4 · answered by open4one 7 · 0⤊ 0⤋
If you are renting it to a family member, and the family member is not going to mention it anywhere on his/her tax return, IRS probably won't know it. There are many complication that could arise from private arrangement like this. The worst one is of course, they stop paying rent and refuse to leave and trash the house -- and you can't evict him easily because there is no written lease.
2006-10-31 00:26:08 · answer #5 · answered by spot 5 · 0⤊ 0⤋
if you're losing $$ on it, then you can probably take the loss as a tax write-off. so, you'd have to report the income in order to benefit from the deductions. talk to a tax attorney, but it's probably in your best interests (as well as required by the law) for you to report it.
2006-10-31 06:17:39 · answer #6 · answered by HoyaHorns 2 · 0⤊ 0⤋
Everyone does not do it...but those who don't risk trouble with the IRS.
2006-10-31 00:39:28 · answer #7 · answered by kingstubborn 6 · 0⤊ 0⤋