top of page
  • Dennis C. Carroll, Esq.

Can I rent property to my family?

Updated: Sep 21, 2023


Yes, but the rent amount must be close to the fair market value ("FMV") for a property of a similar size, type, location, and condition. Searching competitive local properties for rent will help identify this amount.


Also, the family member must use your property as their main home. (You should only have one main home at a time; it's where you spend the most time.)


Any days, or months, where less than FMV for rent is collected from anyone or when rented to a relative not using the property as their main home, will be treated as personal days.


Rent received for personal days must still be reported but expenses for personal days will be partially disallowed. Your rental expenses would need to be reduced by the percentage of days that the property was used personally compared to the total days that the property was used.


Example:

Days property rented at FMV = 305

Personal days = 60

Personal use allocation = 16.4% = 60 / ( 60 + 305 )

Yearly expense for property lawn maintenance = $1,000

Deductible expense for lawn maintenance = $836 = $1,000 - ( 16.4% * $1,000 )


If your allowable rental expenses exceed your rental income (you have a loss) and the personal days exceed the greater of 14 days or 10% of the days rented at FMV (like in the example above), then only certain rental expenses can be deducted against non-rental income (like wages). Those certain rental expenses include the rental portion of mortgage interest, property taxes, and direct rental expenses like advertising, commissions, and management fees.


Another important point; the IRS can disallow your claimed rental expenses if you cannot show that you do not intend to make a profit from the rental property. You will still need to report the gross rental income.

Comments


bottom of page