Taxpayer asks:
Thanks for taking my question.
I moved back home last year after I lost my job. I’ve been paying my parents some rent but I can’t afford to pay the original amount that we agreed on. Can they take the difference between what I promised to pay and what I actually paid as a deduction?
I feel bad about the whole thing and I’m hoping that I can give them some good news.
Taxgirl says:
Ugh. You’re soooo not going to like my answer here.
If you’re not paying fair market value for the rent, your parents are not entitled to a loss for the difference.
And it gets worse. They should be reporting the rent that they do receive from you as income on their tax return. On the plus side, they may be able to deduct some of the expenses associated with the rental from the income. This last bit can be tricky because of the relationship between you and your parents and their actual personal use of the home: there’s a huge likelihood that, under the circumstances, no deductions would be allowed at all. Your parents will want to check with a tax pro with respect to their specific situation (the rules on this can be tricky).
And finally, that difference between what you actually paid and what you promise to pay? That’s a gift to you from your parents. And that brings in another whole host of issues.
Bottom line is that this arrangement may feel like a good idea but come April, it’s likely to cause more harm than good. Not only are you not paying what you promised, you’re adding to your parents’ tax headache.
I don’t know what you’re paying but I’m guessing if you’re paying something, you might be able to make rent with a roommate somewhere else. It seems like your parents aren’t amenable to you staying for free. Maybe your parents would consider loaning or giving you some cash to get back on your feet?
I know the market stinks. But my advice is to find a new place as quickly as possible. The tax consequences of your current situation are far from ideal and that can’t make for a comfortable stay.
Good luck and I hope you find a job soon!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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