How to Deduct Expenses When Renting to Your Children

Rental real estate can be a great tax write-off. If you're actively involved in managing the rental -- vetting tenants, advertising vacancies, calling the plumber -- you can deduct up to $25,000 in rental losses from your other income. If you rent to friends or family, you may not be able to write off as much.

Expenses

Just like your personal home, you can write off the cost of mortgage interest and property taxes on a rental. You can also take deductions that your personal home doesn't get: the cost of repairs, maintenance, advertising, background checks on tenants, and even the mileage for driving over to the property. You have to depreciate the cost of improvements such as a kitchen remodel or a new roof, deducting the expense gradually over time, taking a little each year.

Personal Use

If you charge your kids the same rent you'd change a stranger, you deduct expenses as normal. If they get to live there free, or below the going rate, that counts as personal use. It's not a business deal, so you can't take any business deductions. If you rent to them part of the year, you divide it up: if they get nine months cut-price use but you rent it out three months in summer for full price, you can write off three months of rental expenses.

Fair Rental Price

If you're wondering whether you're charging your children enough to write off expenses, take a look at the local rental market. You're charging a fair rental price -- one that entitles you to take deductions -- if rental apartments or homes in the same neighborhood go for roughly the same amount. For a fair comparison, look for properties that are more or less the same size, same age, and have the same furnishings as your place.

Claiming

If you child's rental qualifies as a personal use, you can still deduct property taxes and mortgage interest on it, but only if you itemize deductions on Schedule A. If you charge the market rate, you deduct expenses on Schedule E, or Schedule C if you qualify as a real-estate business. Use both forms if you have a mix of regular rental and family rental times through the year. If you don't itemize, you can't claim any personal-use expenses.

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About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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