2007-02-25 02:01:38 · 5 answers · asked by Just Mee 2 in Business & Finance ➔ Taxes ➔ United States
Yes, you must report the income. It doesn't matter who the tenant is. The only exception is that if you rent property for 15 or fewer days in any tax year, you don't need to claim the income but you can't claim any expenses either. Normally this only would happen with vacation property that you rent out occasionally or if you start renting a property out in late December.
Normally when you rent property, you can claim the costs of maintaining the property against the rents received to reduce the tax liability. Pretty much all expenses are fair game -- mortgage interest, property taxes, repairs and maintenance, utilities you paid, management fees and commissions and depreciation for example. Rental property often generates a small positive cash flow AND a tax loss that you can use to offset other income -- an ideal situation when you think it through. I owned rental property for a number of years and it was a GREAT tax shield.
However, when you rent to a relative, you MUST charge the prevailing fair market rent. If you don't, you are not allowed to deduct any costs above and beyond the actual rents received. This kills the tax advantage of real estate investment. If you rent to a relative, you must be able to prove that you are charging something close to the prevailing rent for similar properties in the area. Copies of rental ads highlighting similar properties will usually prove that.
2007-02-25 03:04:01 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 0⤋
The IRS and your tax acct will tell you "yes." However, being a relative, it would depend on if they would want to take the tax credit for renting. I'm not sure what your state law allows? Some states allow $2,500 to $3,000. If they plan on claiming it on their taxes, then I would suggest yes. So, you will not get into trouble. If they don't, treat it as cash in your pocket and invest towards rental property updates. You never know when something might need repaired. Good luck.
2007-02-25 10:09:13 · answer #2 · answered by Virgomadre 1 · 0⤊ 3⤋
If they claim the rental tax credit, you had better have a corresponding amount claimed as income, or you are both going to be audited sooner or later.
2007-02-25 10:12:22 · answer #3 · answered by Anonymous · 0⤊ 2⤋
you never have to but if someone turns you in to the IRS you are going to Jail. Go directly to jail, do not pass GO do not collect $200.
2007-02-25 10:10:31 · answer #4 · answered by oldsoftee2001 6 · 0⤊ 2⤋
i wont tell if u wont
2007-02-25 10:09:35 · answer #5 · answered by RICHARD S 2 · 0⤊ 2⤋