How to Deduct Expenses When Renting to Your Children
Original post by Lee Nichols of Demand Media
The Internal Revenue Service does not penalize you for renting to your children; it allows you to deduct your rental expenses from your income. You can deduct a portion of your expenses if you live in the home at least 14 days a year or deduct all of your expenses from the rental if your child rents the entire home. Your child must pay rent equitable to the fair market rent value, and you must report all rental income to claim any deductions from the rental arrangement.
Download Form 1040 Schedule E, "Supplemental Income and Loss from the IRS," if your children had exclusive use of the home. Download Schedule A if you lived in the home for at least 14 days or the equivalent of at least 10 percent of the rented time to deduct the interest and taxes you paid on the home.
Complete Schedule E, listing any received rents. Itemize your rental expenses, such as insurance, repairs and utilities. Consult an accountant if you are unsure about how to determine the home's depreciation.
Calculate your profit or loss from the rental by subtracting Line 25 from Line 24. Enter the total on Line 26 of Schedule E. Enter your profit or loss on Line 17 of your Form 1040.
Tips & Warnings
- If your children pay the rent by bartering services, such as repairs and lawn care, you must determine their wages -- based on fair market value -- and include the amount in your rental income total.
- If you use the home for personal use, divide the number of rental days by the total days of use to determine your expense deduction. For example, if your child rented the home for 100 days and you lived in the home for 200 days, multiply any home expenses by 50 percent to determine your deduction.
- IRS.gov: Topic 415 - Renting Residential and Vacation Property
- IRS.gov: Personal Use of Dwelling Unit
About the Author
Lee Nichols began writing in 2002 and now contributes to various websites. Nichols holds a Bachelor of Arts in Web and graphic design and a Bachelor of Science in business administration from the University of Mississippi. She is currently working on becoming a Deaconess with the United Methodist Church.