Comments on: Ask the taxgirl: Paying Rent to the Parents

By: Kelly

Kelly — Wed, 21 Oct 2009 20:43:59 +0000

JPE, I agree. Although you never know the other issues involved. It’s possible, for example, if there are financial issues that parents may be helping out with student loans, car payments, etc. That could add up. So it’s always a good idea for the parents to consult with someone.

By: jpe

jpe — Wed, 21 Oct 2009 19:42:49 +0000

Any gifted rent (diff between actual and FMV) will almost certainly fall under the $26k annual exclusion, so I wouldn’t sweat that. (a married couple can give 26k in ’09 and ’10 to anyone without having to pay gift tax; unless this is a penthouse or a warehouse or something, total rent won’t even hit the exclusion, let alone the FMV/actual difference)

By: Kathleen A. Friedhoff

Kathleen A. Friedhoff — Wed, 21 Oct 2009 03:14:56 +0000

This is a very interesting question because I had a couple consult with me recently of how to take advantage o f the first time homebuyers credit with a daughter in an out of state school. Their query was if they loaned their daughter money to get a mortgage on her first home as a college student, could she then qualify? And the answer was yes, the daughter could qualify. Except that is where, the taxpayers had plans of their own to have their daughter pay back the loan through her “rent”. Oh, and by the way the daughter would “rent” out some bedrooms to roommates to help pay for her “loan”. I quickly told them that in addition to losing some nice deductions in their “tax plan”, they would also be acquiring the property as a investment and that would negate any homebuyer credit. In addition, all rents would become income to the respective parties creating taxable events. Needless to say, “rent” is income anyway you slice it. Do you agree, Tax Girl?

By: ThomasT

ThomasT — Wed, 21 Oct 2009 01:10:08 +0000

Interesting. When I was a twentysomething working in a restaurant, and like several of my fellow servers, was living at home, we coined the term “emotional rent” to describe our non-cash, non-work “payments” to our parents. I don’t guess the IRS would have looked too kindly on any attempts to determine the fair market value of that emotional rent and count it against the gifted rent. I realize that I was quite lucky, as cash rent may reduce, but certainly not eliminate, your emotional rent rate when living at home.

That said, I was living in my old bedroom with shared kitchen and bath privileges. I am quite sure that my mother (a CPA with a strong commitment to professional ethics) figured the fair market value of my room’s rent to be far below the $800/mo (to give $33.33/mo space for birthday, holiday and other gifts) that would have had significant tax implications. Unless one’s parents live in an Upper West Side condo, it seems likely, even today, that your room’s FMV is less than $833/mo.

By: Kelly

Kelly — Wed, 21 Oct 2009 00:09:52 +0000

Thomas T, actually it doesn’t really matter what the agreement is. The fair market value of the rent less the actual rent paid equals the gift. In this case, though, the assumption is that the price that the parents agreed to accept as rent was fair market.

By: Steve

Steve — Tue, 20 Oct 2009 19:49:50 +0000

In this job market finding employment can take months or even years if you’re unlucky. It’s tough to pay the bills when no money’s coming in.

If this is such a big issue that the person asking this question is looking high and low to find tax benefits for his/her parents, maybe focusing that energy on working out a deal with their parents regarding housework, yardwork and paying household bills could be a solution.

Perhaps the parents are being tough on this because they don’t think “Taxpayer” is working hard enough to find a job. If that’s the case, focus all possible energy on finding a job, and maybe try to move in with a friend for now if it’s really uncomfortable with the ‘rents.

By: ThomasT

ThomasT — Tue, 20 Oct 2009 19:08:56 +0000

The unpaid difference is a gift? Couldn’t they just revise the written agreement (if there is one) to a lower rent payment?

By: Jeff Day

Jeff Day — Tue, 20 Oct 2009 14:01:03 +0000

And here is a good posting on the subject from one website, I would not usually recommend (especially in political world):

http://money.cnn.com/2009/07/29/pf/expert/kids_rent.moneymag/index.htm#TOP

By: Roth & Company, P.C.

Roth & Company, P.C. — Tue, 20 Oct 2009 13:08:31 +0000

Rental losses when your daughter moves back in?…

Probably not. The TaxGrrrl explains…….