Nice Family

[DaveO]

Taxpayer was trying to help his younger brother buy a home. He buys the house and enters into a "rent to own" agreement with brother. Brother never pays any rent. Taxpayer never sets house up as rental since no rents were received. He has to go to court to evict the brother who trashes the house as he is leaving. Taxpayer sells the house for a loss.

Non-deductible since use by the brother is considered personal use? It was not his intention to make a profit from either the rent or sale of the home so it doesn't seem to be investment property. I guess no good deed goes unpunished.

I bet there are some interesting conversations at holiday dinners.

[Snaggletoof]

Family Closets

Dave, seems like every family has one or more of these black sheep.

You can't take a rental loss obviously, due to family renting the home.

However, I believe you can sell the unit as rental property, and since your client
sold to a 3rd party (not another family member), he can take the loss.

Opinions? Anyone out there disagree?

[jainen]

all non-deductible

>>You can't take a rental loss... you can sell the unit as rental property<<

Either it's a rental or it isn't. I say it isn't. He never had a profit motive, never managed it as a rental. What he intended and what he actually did were totally personal. I would consider casualty loss or non-business bad debt, if supported by the details, but I expect it is all non-deductible.

[erchess]

Family troubles are the worst kind of troubles.

But unless I had a written and signed legal opinion to the contrary I would hold that his rent to own agreement was an INSTALLMENT SALE and since that sale was to a relative, he has to claim the income that he was supposed to get.

However, I would also ask NATP to research for me whether I could write the loss on sale off.

[Snaggletoof]

Intent was Rental

Actually, he DID intend to rent it, and the fact that he can take a loss because of a family member in no way prevents this from being a rental house. In fact, if somehow there resulted a PROFIT, IRS would have insisted on this being reported as rental income.

Sell it to an unrelated party, take the loss.

[jainen]

always happy

>>In fact, if somehow... <<

There you go, Dave. A nice variety of answers to choose from. If one of them doesn't satisfy you, I'm sure we can think up a few more. We're always happy to help!

[Zee]

I disagree. I believe a rental agreement must be in writing to be enforceable. It wasn't. As such, no rental. The other facts and circumstances would also seem to indicate no rental, and the related party situation also creates questions. In my opinion, the home sale loss is a personal, non-deductible loss.

[DaveO]

Thanks for all the options.

I can certainly see the logic of all choices. However the failed installment sale one is hands down my least favorite.

[erchess]

I was given a maxim

during my first tax course. It is a maxim that this company lives by, and I left them in part because I chafed under it. "When two or more positions seem to fit the available facts equally well, always take the one that results in your client paying the most current tax."

[ChEAr$]

And the road to hell

Actually, he DID intend to rent it, and the fact that he can take a loss because of a family member in no way prevents this from being a rental house. In fact, if somehow there resulted a PROFIT, IRS would have insisted on this being reported as rental income.

Sell it to an unrelated party, take the loss.

is paved with good intentions.

Maybe he had the intent to rent, but didn't do anything affirmative to
do it. A written agreement would have been nice, but even that not
absolutely required.

Oh, I know. "Dear Abbey, I have this no good brother who......"