Payment received from girlfriend

[erchess]

The more I think about it the more I think that Bees was right. They should set up a joint checking account, fund it in any mutually agreeable manner, and pay the shared expenses out of it. There could not be tax consequences of roommates sharing common expenses. The alternatives of calling her contributions rent or gifts raise potential tax issues without any offsetting benefits.

[Bees Knees]

I still do not see a "rental income" issue here (what portion of the residence is she really renting??),

She is renting access to the entire residence. You don't have to have exclusive rights to a space in order for it to be rent. Rental income is for the use of property, not the exclusive use of property.

The fact that she cannot deduct any mortgage interest and property taxes is also irrelevant. The real issue here is how do we call it not rental income? The only two ways is to either treat it as a gift, or an expense sharing arrangement. If you are going to call it sharing expenses, then I suggest either opening a joint checking account, or have him submit a list of expenses with receipts for reimbursement.

Under accountable plan rules, reimbursement is tax free only when there are specific receipts that are being reimbursed, or per diem rules are met. Giving an employee a fixed amount each month to reimburse expenses without substantiating actual expenses is not an accountable plan. That type of reimbursement is taxable. I see no difference in this case. If you want to call it a tax free reimbursement of living expenses, then my advice is to follow the accountable plan rules, or open a joint checking account.

As I stated before, the tax laws are not up to date on this issue. Married couples are treated as one taxpayer when they file a joint return. Even married filing separate couples have the benefit of unlimited gifting between each other. Unmarried couples and same sex couples considered married under state law are treated as two separate taxpayers for federal tax purposes. You cannot treat them the same as a federally recognized married couple. You cannot ignore money transfers back and forth between the two in these situations.

[FEDUKE404]

Observation

Most college age students living in off-campus apartments, as well as single folks sharing an apartment/residence, would be laughing hysterically at this entire conversation.

FE

[newbie]

Like Erchess I think Bees Knees is right too. There is a difference between sharing expenses and paying rent. Most college age students living in off-campus apartments are sharing expenses and not paying rent to one or the other.

[FEDUKE404]

So if it's rent...

Like Erchess I think Bees Knees is right too. There is a difference between sharing expenses and paying rent. Most college age students living in off-campus apartments are sharing expenses and not paying rent to one or the other.

Then I guess someone needs to tell the BF/GF they need to be working on a Form 1099-MISC to cover the "rent" for calendar year 2009.

FE

[Bees Knees]

Then I guess someone needs to tell the BF/GF they need to be working on a Form 1099-MISC to cover the "rent" for calendar year 2009.

FE

1099-MISC is not required if the person paying rent is not a business. Tenants do not give their landlords a 1099-MISC for renting a personal residence.

As to a college student, when you share an apartment and give your roommate half the rent money so your roommate can pay the landlord, that is an accountable plan. The reimbursement is based on an actual expense incurred by the other on your behalf. In this situation, the GF is not paying an amount each month based on the BF's expenses. She is paying an amount similar to what she use to pay for rent in another place. She is just considering that to be about her share in expenses the BF may or may not actually be incurring. That is called a non-accountable plan. Taxable to the one being reimbursed.

[FEDUKE404]

OK - I'm game!

Assuming this is rental income to the BF:

1) What dollar amount, of the $700/month payments made by the GF, are you going to report as "income"?

2) What kind of income will it then be (Sch E or misc.)? Will there be any reductions to offset the gross income?

3) How will this change the amount of mortgage interest/property taxes the BF can claim on his tax return (previously all on Schedule A)? NB: He may not be "paying" all of it, and conversely GF cannot claim any of said deductions either.

4) What exact verbiage are you going to use to explain to the BF the probable extra taxable income and potential reduction in Sch A itemized deductions?

FE

[newbie]

From Pub 17

Not Rented for Profit
If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535.

Where to report. Report your not-for-profit rental income on Form 1040, line 21. You can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Form 1040, Schedule A, if you itemize your deductions.

Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

[FEDUKE404]

Devil is in the details

newbie -

I'm not sure if you are answering my earlier questions or just providing cursory information.

If the latter, I'm fully aware of the procedure you cited from Pub 17 (!) re not-for-profit rental considerations. More than one client has filed such a tax return.

If the former, then the issue of what portion constitutes "rental" expenses is still unclear. Remember, this is not about the typical renting of a house/apartment to someone (let's say a relative) for less than normal market value rates, but closer to renting a duplex where some expenses are personal and some expenses are "business." One would think there is a great deal of overlap in a single residence occupied by the "landlord" (BF) and the "tenant" (GF).

You run into such issues as to whether the GF is paying some of the mortgage interest/taxes, some of the (allocated) utilities, some of the (allocated) HOA dues, or merely buying most of the groceries with her monthly payment to the BF.

I just see this entire thing as an extremely large can of worms....

FE

[Bees Knees]

I wouldn't call it rental income. I would call it a gift from GF to BF.

My point is married couples don't need to use their $13,000 annual gift exclusion for this. Unmarried couples do.

[newbie]

newbie -

I'm not sure if you are answering my earlier questions or just providing cursory information.

If the latter, I'm fully aware of the procedure you cited from Pub 17 (!) re not-for-profit rental considerations. More than one client has filed such a tax return.

If the former, then the issue of what portion constitutes "rental" expenses is still unclear. Remember, this is not about the typical renting of a house/apartment to someone (let's say a relative) for less than normal market value rates, but closer to renting a duplex where some expenses are personal and some expenses are "business." One would think there is a great deal of overlap in a single residence occupied by the "landlord" (BF) and the "tenant" (GF).

You run into such issues as to whether the GF is paying some of the mortgage interest/taxes, some of the (allocated) utilities, some of the (allocated) HOA dues, or merely buying most of the groceries with her monthly payment to the BF.

I just see this entire thing as an extremely large can of worms....

FE

You said you were game so assuming it was rental income to the BF you had a list of questions. I thought I was answering your questions in general terms. Renting out a portion of your home, especially in these difficult times could happen a lot. This is boyfriend/girlfriend, but would it be different if it were parent/child, brother/sister, friend/friend? Okay, maybe if your weren’t BF/GF you would have separate bedrooms, but what if a friend were foreclosed upon so you set up two separate beds in your master bedroom and all the kids shared the rest of the bedrooms? This friend now pays you $700 a month rent, would that be different?

Unlike you, I have not ever had a client that has filed such a tax return. If this were my client, I would probably post the question on the board and look for some thoughts because its not a black and white situation. I would advise them to open a joint checking account for the purpose of paying household expenses and have the GF deposit into this for groceries and shared expenses and lean toward the gift theory. The OP clearly stated the intent is $700 a month rent. If this is what the client wants to label it I would suggest all income on line 21, mortgage interest and property taxes on schedule A. Because it’s not like renting out a room and entire house is mixed personal/rental I don’t know that the BF would have any other expenses for Schedule A line 23. Property taxes and mortgage interest are probably in excess of the $8400, if so depreciation would not be allowed or allowable for carryover.

It may very well be a large can of worms but it seems it was opened when the BF asked the question. I can’t see you, but I get the feeling that you see this as black and white and anyone that is not agreeing with you is an idiot, I apologize in advance if I am misunderstanding your take on it but I see shades of grey.

[FEDUKE404]

One who assumes....

... I can’t see you, but I get the feeling that you see this as black and white and anyone that is not agreeing with you is an idiot, I apologize in advance if I am misunderstanding your take on it but I see shades of grey...

That's a pretty strong statement to make....

There are plenty of people on these boards who have forgotten more about taxes than I've ever known. And sometimes there are valid differences of opinion, as obviously shown by the variances expressed here (taxable "rental" income to no tax event).

I certainly can understand this as a potential gray zone, depending upon the relevant facts at hand. However, in this specific case, I would probably lean toward a non-taxable event primarily due to the issue of a man with a live-in girl friend who is helping with shared living expenses. If a tax preparer wishes to call the payments "rent" - more power to him/her.

So I'm now going to bid a fond adieu to anything further on this discussion.

FE