Renting to Relatives

[Chan]

I have a client who bought a rental home in another state and is renting to her mother. The rent is below retail value, ($200/mo). Is there any rule about taking losses concerning this? I'm thinking of the related party rules when real estate is sold, but how about renting?

Also, how about the trips home to "take care of the rental"?

Thanks for the help.

[gkaiseril]

Yes, expenses are taken to the rents received. No loss is recognized and no loss is carryforward. See the instructions for lIne 2 on page 2 of the Schedule E instructions. Also see IRS Pub 527.

[solomon]

No Deductions

According to TTB, if rent is below fmv, then it is considered personal use and no expenses allowed but must report income.

[veritas]

I thought Janien would

jump on this one. I don't have the cite handy but there was a case allowing a lesser rent to relatives. I think the reasoning was relatives would take better care of the rental. Obviously this was reasoning from persons who had no relatives.

After reading the taxbook on my home laptop I see they have the case on page 7-7. The case was from 1983 where a reduction in the fmv of the rent was allowed since the taxpayer avoided the need for a management company. A newer case in 1999 also on page 7-7 would seem to preclude taking losses for less than fmv rent.