Tax Deduction Rollover Into Next Year

[Matthew Freese]

Hi Everyone -

I am planning on buying a 2 unit property and renting one of the units to my friend. I am giving him a good deal on it, so the rent will only be a few hundred dollars. I have done a lot of reading on all of this, and know that I cannot deduct expenses (HOA, interest, etc.) greater than the amount that I am receiving in rent if I make over 100k with my salary. As such, these expense/deductions would roll over to the next year. A few questions:

1. Is what I wrote correct?

2. If he keeps living here for several years, do the deductions roll over year after year an accumulate? Or can they only roll over one year?

3. If I sell the property, I believe the rolled over expenses/deductions happen then, right? If so, are they deducted from capital gains tax, or my normal income tax for the year in which I sell?

Thanks in advance!

[Basit Siddiqi]

Why are you giving your friend a deal on the rent?

You run the risk of the IRS classifying the property as 'personal use' if you rent the property for a lot less than FMV.