Can I Claim a Rent Deduction for an Elderly Parent in a Home I Own?
If you let your parent live in your rental home at a discount, that's wonderful, but not tax deductible. In fact, it may make your taxes worse by reducing how much you can write off on the rental property. When you let family live in a rental house cheaply, the IRS treats it as personal property, not a business investment.
You can deduct repairs, maintenance, mortgage interest and other expenses when you rent out a house full-time. When you also get personal use from the property, you can't deduct as much. Let's say you have a beachfront rental home you rent out for most of the year. In summer, you and your family stay there. As you use the house for a quarter of the year, you can only claim 75 percent of your deductible rental expenses.
Fair Market Value
Offering your parent cut-rate rent comes under the IRS definition of personal use. Any time you rent property to a member of your family for less than the going rate, it's considered personal use, not business. If your parent lives there year-round, you can't claim any of the tax deductions for rental homes. The rent you take in still counts as regular taxable income, however, so your generosity may hit you harder than you thought.
Fair Market Rate
The IRS standard for a fair market rate is what a total stranger would be willing to pay to rent your house. If you're not sure what that figure is, compare your house to other rentals in the same neighborhood, of roughly the same size and same amenities. If you rent to your parent for substantially less than the going rate for other homes, the personal-use rules kick in.
One way you can gain a write-off from renting to your parent is to claim her as a dependent. If you provide more than half your parent's support and she earns less than $3,800, as of 2012, you can take a dependent exemption for her on your taxes. Support includes the value of any lodging you provide. You still can't take any tax deductions for the rental house, but the dependent's exemption may make up for some of the write-offs you've lost.
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.