Rental to related party

[Jiggers]

Taxpayers bought a house for son and friend to live in while at college.

FMV rent is $800 per month.

Friend pays $400 per month.

Son pays $200 per month. Obviously not 1/2 of FMV rent.

What do I do?

Report $400 per month rental on E with 1/2 of depreciation and related expenses. There is no loss on this 1/2.

Report $200 per month rental on second E with 1/2 of depreciation and related expenses, up to amount of gross income. And what becomes of excess depreciation and expenses as there is a loss for the first year?

Suppose the parents gifted the balance of $200 per month for the unpaid rent up to the FMV. Different results?

[Gretel]

I would urge the parents to gift son the difference and have him pay FMV rent. I don't think you can split a house into two different rentals unless it is a duplex.

Since a relative supposedly takes care of a rental better than a stranger you can discount the rental by up to 20% I believe. So FMV rent by son would be $320. Don't know if this will work if friend is paying more if it is one dwelling.