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Rental to Daughter

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    Rental to Daughter

    Situation: in 2003 parents move out of house. Daughter moves in. House in bad shape.
    Daughter says, instead of me paying you rent , I will fix up the house. We can show it as
    rent at $500. per month until the costs have been recovered.
    Daughter spent $13,700. in 2003 in repairs & improvements. Still work to be done.
    Daughter will not write a rent check until the 13,700 has been recovered at 500. per mo.
    Question: Does parent have rental income of 500. per mo. in 2003 with the improvements of 13,700 to be depreciated over 271/2 yrs.?
    What would be the proper way to handle this?
    Daughter said they would not have been able to rent the house, as it was, for more than 300. per mo.
    Daughter said the 2nd bath & storage bldg. out back still need a lot of work.

    Partial answer, maybe

    Let us say the place was rented all 12 months in 2003. Then the rental income was $6,000. To me, this is the most the owners can either expense or depreciate as this is the most they effectivelyspent. Then in 2004 the owner's would have another $6,000 to write off but now I think it would all have to be depreciated.