Deductible Expenses When You Rent to a Family Member

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If I Offer My Condo Rentals to a Family Member, Can I Still Deduct My Expenses?

Deductible Expenses When You Rent to a Family Member

People often ask if they still can deduct their operating expenses if one or more of their condos for rent are offered to family members. The simple answer is “Yes.” In reality, the more correct answer is “Probably.” Here are some questions you might want to ask yourself.

  • Am I charging a “market” price for my home for rent? For example, if other comparable rentals in your area rent for $1,000 per month and you're giving your nephew the property for $300 per month, the IRS may ask for clarification.
  • Is this an “arm's length” transaction? Would you complete this condominium rental with similar terms for a person who was not a family member? That is the question that may be asked by your tax advisor or the IRS. Simply put, if you rent for a lower than market price, you may become subject to vacation home rules and not landlord-related rules. It could be assumed you are “giving” the occupancy of your condo for rent to your family member. There are a few cases that provide a precedent that if you rent to a family at a discount (often up to 20%), you'll still qualify as operating a business, which allows you to legally deduct associated expenses.
The real concern is that there are often multiple components to this issue. You, obviously, have the right to charge whatever you want for your condo rentals. Always consult with your tax advisor before assuming any issues, for better or worse.

The above-listed tip is for informational use only. Always read entire specific documents and language before executing any contract or agreement.

   

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