Article Date:
July 2016

Word Count:



Avoid the Big Triple-Tax Whammy When Renting to Relatives

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.


But you need to know how to rent to relatives, because 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 not know how to rent to your relative.




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