I am renting a property I own to my elderly mom. The annual rent is approximately 55% of fair market value and I am concerned the IRS will view this as a not for profit rental.
Could you go over the rules for claiming expenses against not for profit rental income?
Would you advise setting up the rental agreement to exclude portions of the property, say the garage, a room, and a bathroom; thereby only allowing for a proportional amount of rental expenses to be included against rental income and making this look more like a for profit rental?
We covered your question on the Open Forum Show today, March 28th. Should be up in the next 2-3 days. Thanks so much for listening. If you want to have a strategy session with one of our lawyers, get an Estate Plan, or set-up an Entity, please give us a call at 435-586-9366 or visit www.kkoslawyers.com. Mark and Mat
The IRS is not going to want you to get in to a loss situation because you’re renting to a relative at below FMV. See IRS publication 527. Family use of a property at below fmv is generally considered personal use. Page 24 of publication 527 says to report the income on schedule 1 and the mortgage interest and real estate tax expenses on schedule A.