Rental income or other income

[taxgirl]

What would you do??

Client had rental agreement in 2014 with mother-in-law. (Renting basement apt in t/p's home) Mother-in-law paying when she could which was approximately four months out of 12. Fair market rent, questionable. Mother-in-law ill and trying to get disability. Evidently the rental agreement was set up so that she could be eligible for disability (per client ?). Everyone is hoping this is a short term situation. Taxpayer wants to show it as income to prove "rent" for mother-in-laws disability. Would other income be the more appropriate place to put this income

[taxea]

No but she can only take expenses up to rental income amount unless rent is at fair rental value.

[taxgirl]

So you are saying I should set up a schedule e and show the only income received and a fraction of the expenses to net to zero.

[AZ-Tax]

TTP pg 7-8

No but she can only take expenses up to rental income amount unless rent is at fair rental value.

Bottom of pg 7-8 of TTB

Did You Know? Use of a dwelling unit by any individual who pays
less than fair rental value is considered personal use by the owner;
therefore, no expenses attributable to that period of rental are deductible.
Rental income must nevertheless be reported as income. [IRC
§280A(d)(2)]

As I read this, if renting below fair market value, NO rental related expense can be claimed but gross rent needs to be reported as income.

[taxgirl]

Everyone is hoping this is a short term situation. I have already discussed, with taxpayer, the possibility of this becoming a true rental situation. For 2014, until we know what this is going to look like, shouldn't I just put the income as other? What would you do??

[AZ-Tax]

If it was me, Sch E

Everyone is hoping this is a short term situation. I have already discussed, with taxpayer, the possibility of this becoming a true rental situation. For 2014, until we know what this is going to look like, shouldn't I just put the income as other? What would you do??

Tough decision but if it was me, I advise the TP to claim the rent income and expenses on Sch E.

[taxgirl]

I don't mean any disrespect but that contradicts what you posted previously??

[taxmom34]

Bottom of pg 7-8 of TTB

Did You Know? Use of a dwelling unit by any individual who pays
less than fair rental value is considered personal use by the owner;
therefore, no expenses attributable to that period of rental are deductible.
Rental income must nevertheless be reported as income. [IRC
§280A(d)(2)]

As I read this, if renting below fair market value, NO rental related expense can be claimed but gross rent needs to be reported as income.

this reference page of TTB is for vacation homes

[Gretel]

Pub. 17

Below is what Pub. 17 says, I far as I can tell this matching your situation closely. However, I would be weary playing along with a set up like your taxpayers has.


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. For example, you can include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions.
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. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

[AZ-Tax]

So Rental exps deducted after AGI

Below is what Pub. 17 says, I far as I can tell this matching your situation closely. However, I would be weary playing along with a set up like your taxpayers has.
Where to report. Report your not-for-profit rental income on Form 1040, line 21. For example, you can include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions.
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. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

So TP's that are receiving SS, the rental exps up to the gross rent are deducted after the SS amount of tax is determined via AGI, correct?

[taxgirl]

The previous post is implying to treat the rental expenses as you would hobby losses - to the extent of income only and on the lower section of sch A