rental income - family

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    rental income - family

    I have a single family I rent out at market rate and take approapriate depreciation and pay all taxes.

    the tenants are leaving and my son would like to take the apt - at a lower rate since he is just starting out - the lower rate is about 1000 per month lower which would still cover my costs.

    In order to preserve the ability to depreciate, and write off repairs, etc. would it be ok to charge him market rate (claimng all income properly at the higher rate) and then gifting him 1 K at the end of every month so he could afford the rent.

    That woudl preserve the property as a market rate rental and  Iwould ntot have to file a gift tax return.

    Legal?
     
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    Re: rental income - family

    In Response to rental income - family:
    [QUOTE]I have a single family I rent out at market rate and take approapriate depreciation and pay all taxes. the tenants are leaving and my son would like to take the apt - at a lower rate since he is just starting out - the lower rate is about 1000 per month lower which would still cover my costs. In order to preserve the ability to depreciate, and write off repairs, etc. would it be ok to charge him market rate (claimng all income properly at the higher rate) and then gifting him 1 K at the end of every month so he could afford the rent. That woudl preserve the property as a market rate rental and  Iwould ntot have to file a gift tax return. Legal?
    Posted by carques[/QUOTE]

    Dear carques:

    Entirely legal, but you would be creating income for yourself.  The lower rent would allow you to claim expenses against it, up to the amount of the rent received, but not a loss, since it is a related party rental - treated as personal use by you, since it is your close relative occupying the proprety.  The first expenses to be absorbed by the rents would be those that are deductible without regard to the rental status of the property - mortgage interest and taxes.  Next would be the out-of-pocket costs.  If those are all covered, you would then be allowed deprecaition, up to the remaining amount of rent received.

    Hope this helps in your tax planning!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal
    Katz, Nannis + Solomon, P.C.
     
  3. You have chosen to ignore posts from carques. Show carques's posts

    Re: rental income - family

    Thanks - just so I get it straight - I guess I could work two scenarios

    1. Market rate (say 1600/month - cost is about 600) and treat it like I would as any other renter (and gift back 1000 per month whcih would not require any filing) and see if depreciation, repairs, and carrying costs eat up some of the profit. The house needs some repairs (boiler, electricty upgrades, landscaping that I think would eat up some income).  The house is all paid for but was an inheritance so the depreciation is pretty high as the inherited basis is high enough to offset a large amoutn of the income, even at the higher rate. 

    2. Just charge carrying costs of say 600 month and treat it as you say, just deducting up to rental income. Although I guess in this case I could do an equity line for repars and add that to the cost so at 800/month between taxes and misc expenses (insurance, etc) and the monthy equity it would eat it all up.
     
    I guess either scenario would work

    thanks
     

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