RENT AND REPORT OR NOT

[Sheri R.]

I will be paying cash. He will live in the house alone. I will be paying the tax and insurance. Hopefully he will be able to reimburse me for my expense by making monthly payments to me. I am unsure whether I should report what he is able to pay me as rent and try to deduct expenses to maintain the house. Or just use whatever he is able to pay me pay the expenses of the house and anything more to recoup the cost to me buying the home, about 100k. 

[Russ B.]

You can totally rent to family as far as the IRS is concerned, and still treat it like a business. 

For tax purposes, you probably want the property to be treated as a "for profit" rental if possible, because the other alternative is that it's a "hobby", and you can't write off any losses.

One of the tests is that the rent has to be "reasonable" - it can be somewhat below market, but it can't be pennies on the dollar low. If he's not expected to be able to pay much (or regularly), you might find yourself in the latter category.

I don't know if you have an accountant now, but you probably do want to at least run it by one. Better to find out now, than after you already owe... 

As for a lease, I'd say you should have one even if you're going to charge very low rent - some kind of agreement that lays out the terms of your arrangement, that you would both stick to. Its main purpose would be to prevent (and minimize) potential conflicts as much as possible. Landlords and tenants get into it with each other all the time, so anything that can help reduce that risk would be a plus.