When you rent property to a Relative you MUST
charge them a "Fair Market Value" rent in order to
qualify for IRS deductions

Renting a Property to a Relative
A family member that uses your rental property as his or her main
home must pay a "fair market value" rent.  Fair market value is
the amount a person who is not related to you would be willing to
pay. 

Determine Fair Market Value
The easiest way to determine the fair market value is to ask a
real estate agent in the area for comparative rentals.  If your
relative pays a fair market value rent and uses the property as their
principal residence, your relative's use is not considered personal
use by you.  If you do not charge a "fair market value" for
rent to your relative, the IRS will disallow any rental loss
deduction.

IRS Definition of Relatives
Relatives who are within these rules are: brothers and sisters,
half-brothers and half-sisters, spouses, parents, grandparents,
children, and grandchildren.

Example:  Brandon owns and rents a home to his grandfather
Bobby.  A real estate agent estimated the fair market rental rate for
the house to be between $850 and $900 a month.  Brandon
charges his grandfather $600 a month.  A year later Brandon sold
the house and claimed a rental loss and a loss on the sale.  The
losses are not deductible.  The below market rent to Brandon's
grandfather would be treated as his own personal use of the house,
thus preventing the rental loss deduction.  The below market rental
also demonstrates that Brandon held the property for personal
purposes thereby negating his ability to deduct the loss on the sale
as well. 


Click here to leave renting to a relative and return to
rental property main