Rent or not?

[Kram BergGold]

Client bought a house. Nephew lives there and pays all expenses like real estate taxes, utilities fix up, house insurance. There is a small mortgage (a home equity loan taken out against my client's residence which I will trace to this new house in case it ever does become a true rental because my client is subject to AMT which makes home equity mortgage useless) that my client pays.
Do I report the nephew's expenses as rent with an equal deduction or just ignore all of this as if it were a gift of under $13,000?

[taxea]

Client bought a house. Nephew lives there and pays all expenses like real estate taxes, utilities fix up, house insurance. There is a small mortgage (a home equity loan taken out against my client's residence which I will trace to this new house in case it ever does become a true rental because my client is subject to AMT which makes home equity mortgage useless) that my client pays.
Do I report the nephew's expenses as rent with an equal deduction or just ignore all of this as if it were a gift of under $13,000?

Does nephew pay FMV rent? Sounds like Client made deal with nephew that he could live there rent free if he paid all the expenses. In this case Client has no deductions and the home is personal use by family.
If you report the nephews payments as rent the client would have taxable income and no expenses because he didn't pay the expenses.

[S T]

Fair Rental Value

Doesn't the related family member have to treat the rental as his "main home" and pay a "Fair Rental Amount" in order for your client to treat as a "Renatl" on Schedule E??

Not sure it could be a gift?

Take a look at a TC Memo 1983-411 Code Sec(s) 280A - another link that might help would be http://www.taxalmanac.org/index.php/...ss_than_FMV%3F

Sandy

[taxea]

Doesn't the related family member have to treat the rental as his "main home" and pay a "Fair Rental Amount" in order for your client to treat as a "Renatl" on Schedule E??

Not sure it could be a gift?

Take a look at a TC Memo 1983-411 Code Sec(s) 280A - another link that might help would be http://www.taxalmanac.org/index.php/...ss_than_FMV%3F

Sandy

you are correct on the requirements for a Sch E. In this case no one has any deductions because the TP is not paying the expenses and the nephew doesn't have standing to take the expenses.
As for calling it a gift that would be so the TP wouldn't have to declare the nephews payments a income, however, if the expenses paid by nephew are made directly to the holders of the mortgage, property tax and other companies....no money, unless one could call it constructively received, is going directly to the TP.
If the IRS looks at the expenses paid by nephew as income to TP then it has to be reported. If it amounts to FMV of rent and, in this case it is the nephew's primary residence, then the TP should file a Sch E and not take the expenses that the nephew is paying.