Rent House

[Bird Legs]

Client, couple, bought a house in 1970 for 5,000. and had it moved onto a lot they owned
and moved in.
In 2004, the couple moved out of house and turned it over to son & wife in exchange
for the son & wife to fix it up, repairs, improvements, etc.
The "renters" then spent about $8,000. in 2004 in new appliances, fixing up the bath
bedrooms, etc.
In 2005, they spent very little in order to build their cash back up.
Then in 2006, the renters added fence, new roof, etc.
How would this be handled on the 2004, 2005 & 2006 income tax return of my
clients, the parents?
As rental income, with the cost of improvements being the rent? A flat rate per
month, or just forget about it?
Your wisdom, guidance, and smarts are all appreciated.
Just sitting here in the middle of Tx wishing for rain.

[solomon]

Legal Title

Does your client still have title to the property? If so, who is paying the property taxes? If client passed title to the son the FMV at that time would be considered a gift. If client is still legal owner, then the son is considered the equitable or beneficial owner. In any case, I would not consider it income to your client. The son is just increasing the basis of the house.

[Bird Legs]

Rent House

Client has title to rent house. Client pays the real estate tax on it.
Client is letting the son & wife live there rent free in exchange for the
repairs & improvements.

[Unregistered]

The improvements and repairs are rent to the landlord. The landlord will amortize or deduct the items on their return. The landlord is not really giving the home rent free. The next question is whether the home is being rented at fmv.

[Kram BergGold]

Bird

I think this is a facts and circumstances case. There is nothing in the law that says you can't let your child live in a house rent free. However if there is a quid pro quo that I let you live there and in exchange you make improvements this is barter, ergo rent. It sounds to me, in your case, there is a quid pro quo and you are stuck dealing with rent. Too bad the client just out of the goodness of his heart didn't just let his kid live there and then kid just made some improvements to make the house more comfortable for his own use.

[Bird Legs]

FMV Rent

House that cost $5,000. 30 yrs. ago is not going to rent for a lot of money.
That 5,000. includes moving it to the lot.
Thought maybe $500. per month.
your response is greatly appreciated.