No question about it: Your relatives can make great tenants for your rental properties. You know a lot about your relatives. You probably know if they will take good care of the property.

Ideal candidates may include children, even children attending college, and mothers and fathers in retirement. Actually, any relative who will take good care of the property is an ideal candidate.

You need to know how to rent to relatives, since renting incorrectly can easily earn you victim status in the tax law.

Victim Surprise

Imagine this: Your rental income statement shows a tax loss of $5,000, but because you did not properly structure the rental of this property to your son, you

lose the $5,000 tax-deductible loss,

lose $17,000 in other claimed rental deductions on your tax return, and

pay tax on $10,000 of rental income you received from your son.

This gives you $32,000 of additional taxable income—victim income—because you did ... Log in to view full article.