Question About Renting to a Relative

[Tim L.]

I'm considering purchasing a home for my mother to live in, since she is currently renting and unable to purchase a home for herself. I will charge her fair market rent, but I want to make sure that I am able to claim it as a rental property, and get all the tax advantages (depreciation). The problem is, I have been giving her money every month to help her pay her current rent, and I want to continue to help her.

I'm thinking of including her in my business, as a bookkeeper, and pay her a modest wage similar or greater to what I've been currently giving her. This would also help alleviate time for me to focus more on growing my business, so it would be a win-win for everyone.

Is this a sound strategy tax-wise? I would love to hear from anyone with experience in this.

[Deanna McCormick]

If you hire your mom and pay her for bookkeeping work for this rental property you'll 1099 her at end of year for wages. She then pays taxes on that income, and you can use wages paid to her as deduction against the property for taxes. 

If she's working for you as a general bookkeeper you can charge a portion against the rental property for administration costs.. she gets a 1099

You can gift money to her, so she wouldn't owe income tax on that up to the yearly amount permitted and she can then pay you rent.. but then your claiming income right back and paying taxes on that earned rental income..which is like a round robin shooting yourself in the back

EX: Family....rental situation that was tax advantage for us for awhile,, we purchased a rental (manufactured home) family member moved in,, we covered cost of everything had a rental agreement for XXX per month,, but they never paid a dime,, we covered everything except utilities, we took no reported rental income, we ran it at a loss for 6 years and was a tax advantage to us in the end. 

Talk with a tax guy ...