I own a rental house. I bought the house so that friends of mine who already lived there would not have to leave when the house was sold. I only paid $50K for it and it was appraised at a little over a $100K. I have owned it for almost 3 years. I have always charged the couple the price of my mortgage payment so I have never made a profit. Now that the husband has been diagnosed with cancer, they are not able to pay the full amount so they pay about $150 less than the actual mortgage payment. TurboTax has indicated that the government may subject me to special rules about how I claim my deductions unless I can prove that I intend to make a profit. TurboTax says that the IRS may believe that I am charging a special rate because they are friends/relatives. It doesn't tell me what those rules are. I need to know what those rules are & what kind of deductions I can take. I need to know if the fact that the property value is so high is sufficient to show that I will make a profit.
2007-02-05 09:04:11 · 6 answers · asked by illume_13 2 in Business & Finance ➔ Taxes ➔ Other - Taxes
You say you bought the house so your friends would not have to move?
Okay, unless you purchased it on a contract sale or rent to own.
why keep it? I would see if it is possible to get your friends to assume the loan, then unless they fail to pay, you would no longer be legally responsible. You might still have to co-sign for them, but hey you are holding the bag now.
They would still have thier home.
all I know about rental law concerning the irs is you are responsible for the taxes as a rental regardless of who lives in the house. Because you have been charging rent.
There is no way out of that.
Yes the home value has a big chunk of what they charge in taxes, same as property tax does.
They do average how much they believe you should make in prophit. Like a waitresses tips.
The tax is charged weather you make the money or not.
You said nothing about property tax ? Only that your friends made up the mortgage payment. I hope the taxes have been paid or your friends may be out of a home, you a house and still owe a very large debt to the mortgage company.
Because loosing property to tax sales does not erase the mortgage debt.
2007-02-10 08:30:00 · answer #1 · answered by andreamarie 2 · 0⤊ 1⤋
The rule is that you need to charge the market rate for the rent. The IRS's responsibility is to prove that the rent is in fact lower than the market for comparable properties. Profit or loss doesn't figure in rental income because interest, depreciation, repairs, taxes, and vacancies can all make rent unprofitable from an accounting and tax standpoint. An easy excuse for charging less is that you lowered the rent because you had a tenant that was taking good care of the property and you were afraid that an extended vacancy and an unknown tenant might cause a greater loss.
That aside, I would charge your friend/tenant the full rate and ask them to sign a note for the balance, due on your demand.
2007-02-10 07:54:06 · answer #2 · answered by Scott K 7 · 0⤊ 0⤋
All it means is that you cannot take a loss on your Schdeule E. You use only enough deductions to bring the profit to zero.
"If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535."
2007-02-05 09:22:18 · answer #3 · answered by Anonymous · 0⤊ 1⤋
You can not deduct the loss unless you are renting at fair market value and intend to make a profit.
2007-02-05 09:38:01 · answer #4 · answered by Wayne Z 7 · 0⤊ 1⤋
a million. No. If she sells it and it isn't her significant position of abode on the time there'll be a capital income to rfile, yet no longer until eventually that occurs. 2. the web income should be taxable as apartment income. because the living house is registered fullyyt in her call the income might want to all be attributed to her. caution: If portion of the income is attributed to human beings living outside of Canada there'll be withholding tax themes. Gross quantities credited or paid to non-voters are difficulty to a 25% withholding tax it truly is to be remitted to CRA except the acceptable elections are filed and withholding isn't required via elections. The non-voters ought to then ought to document tax returns to rfile their Canadian income. more effective to leave the income all in her palms.
2016-11-02 10:09:17 · answer #5 · answered by Anonymous · 0⤊ 0⤋
This could help: http://basefor.info/tax_deductions/income_tax_deductions.php
2007-02-12 13:36:09 · answer #6 · answered by roar 1 · 0⤊ 0⤋