Not Our Dwelling, Not A Rental... Tax Deductible?
We own a condo free & clear that my mother-in-law, who is retired on social security, lives in rent free. She pays the association fees and we pay the taxes and the majority of the repairs. We have never lived in the place.
Can we deduct the cost of repairs on our taxes? Do we need to write a lease to do so?
Hello MariaAZ,
This is a easy one. You can not write off the repair cost. Reason being, rental income is where you would deduct this cost. Since you have no rental income from the property, you have no place to deduct this cost. The only deduction that you have is the yearly taxes and maybe claiming your parent as a dependent.
This may not be what you wanted to hear but that is the skinny on this issue. Now if you had other rentals that you received rental income, then you could off set the payment for you parent, if you called it rental property. You maybe could get away with it that way. I don't think the IRS would hunt you down if you classified the condo as a zero income rental.
if you classify this as a 2nd residence, you might be able to deduct the taxes.
We do have other investment properties, if that helps.
Quote:
On 2003-08-20 09:50, Vern wrote:
Hello MariaAZ,
This is a easy one. You can not write off the repair cost. Reason being, rental income is where you would deduct this cost. Since you have no rental income from the property, you have no place to deduct this cost. The only deduction that you have is the yearly taxes and maybe claiming your parent as a dependent.
This may not be what you wanted to hear but that is the skinny on this issue. Now if you had other rentals that you received rental income, then you could off set the payment for you parent, if you called it rental property. You maybe could get away with it that way. I don't think the IRS would hunt you down if you classified the condo as a zero income rental.
I disagree. The IRS lets you deduct up to 25K of other income (other rentals, W-2 income, 1099 income, even capital gains I believe) on rental properties that are losing money. If you're worried about having no income to deduct from, just have your mother-in-law pay you $1 a month in rent. Write up a lease and everything... the IRS can't argue with a rental contract.
[addsig]
Quote:The IRS lets you deduct up to 25K of other income (other rentals, W-2 income, 1099 income, even capital gains I believe) on rental properties that are losing money.jfuery,
I think you have this backwards. With certain limitations, a taxpayer may use up to $25K of net passive losses to offset ordinary income.
I think we can go either way on this one. I prefer the second home treatment here. The house appears to be a second home (or investment property), presently occupied by a family member, and is not being used as a rental property. As such only property taxes and mortgage interest would be allowable deductions. Minor repairs are not deductible, while the cost of capital improvements increase the basis.
It may be advantageous to continue treating this property as a second home, or investment property and not convert it to a rental property. If the taxpayer is in the 15% tax bracket in 2008 and also sells the property that year, the profit on the sale is tax free -- ZERO capital gains tax rate in 2008 for this tax bracket.
Additionally, since a second home is not a depreciable property, no depreciation recapture applies. Contrast this to rental use property -- depreciable property -- though sold when a zero capital gain tax rate applies -- is still subject to depreciation recapture at a 25% rate.
Converting this property to a rental has the advantage of bringing all the allowable Schedule E expenses into play to include depreciation, insurance, and the cost of minor repairs. If the occupant is treated as a tenant at will, with the association fees constituting the full amount of the rent, you could also make the argument that this is a rental property. On the downside, renting to a family member at less than a fair market rent raises gift tax issues for the taxpayer. [ Edited by DaveT on Date 08/21/2003 ]