Cumulative Kin Renting

[Corduroy Frog]

Taxpayer's sister is renting home from her. I have been in the house for a housewarming, and the amount of rent is (in my opinion) close to FMV. Certainly no more than FMV, but close enough to be an arms' length transaction. Not grossly underpriced as is the case with some kinfolk. If there is an advantage to do so, we are willing to assert she is renting at FMV, and I would concur with them. Due to the economy, landlords are taking a hit recently anyway, either through rental price or vacancy.

Repairs were made in 2007, and the home reported a loss. We didn't take the loss because of the immediate family renting the home. For purposes of presenting the question, the loss was $1000.

In 2008, the home will be rented for a $2500 profit.

How much rental income should be reported on taxpayer's Sch E?

a) none
b) $2500
c) $1500

I can't find anything that would allow us to "net" one year against another with kinfolk. But if there is a creative way to legally do so, I'd love to hear it.

[solomon]

...we are willing to assert she is renting at FMV...

Repairs were made in 2007, and the home reported a loss. We didn't take the loss because of the immediate family renting the home. For purposes of presenting the question, the loss was $1000.

In 2008, the home will be rented for a $2500 profit.

How much rental income should be reported on taxpayer's Sch E?

a) none
b) $2500
c) $1500

I can't find anything that would allow us to "net" one year against another with kinfolk. But if there is a creative way to legally do so, I'd love to hear it.

On the one hand there is an assertion of FMR and on the other hand the loss was not taken in 2007 because of renting to immediate family. Does not make sense. If it was FMR the loss is legitimate.

I vote for $2500 profit in 2008 and amend 2007 and take the loss - no netting in any case.

[S T]

Tax Year Carryover

I agree with Solomon.

I don't think you can carryover losses on rental from one year to the next, except for meeting the passive loss form 8582 rules due to income limitations.

So year 2007 $1,000 loss if rented at FMV, amend 2007 Tax Return, if not over the passive loss rules.

Year 2008, if FMV rent and respective expenses produce loss of $2,500, then claim $2,500 on 2008 Schedule E, subject to the passive loss rules.

Sandy

[Corduroy Frog]

Good Answers

thanks folks. I've always been timid about claiming a loss, and then marking the top where you have to answer about family members living 14 days or more.

This is the first instance in a long time where I've encountered a family member paying FMV rent. Most of the time when kinfolk are renting, there are arrangements where the rent is unrealistically low, and then even with low rent the kinfolk don't pay half the time.

For what it's worth, I would NEVER rent to kinfolk.

The reporting of a profit in some years should give credence to the claim of FMV being charged.

[erchess]

I have always been told

that family in this case included only people who reside in your residence. Not merely close relatives of you and or your spouse. I would say that if someone moved out of your house into the rental property they no longer reside in your residence they reside in their own residence which they are renting from you at any agreed upon rate, FMV or not.