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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Taxpayer asks:
I moved 3 years ago and am renting a house that I own. I’m not able to file single head of household because I don’t live in the only home I own. Would I qualify for the tax credit?
Thanks
Taxgirl says:
As I understand your question, you are wondering if you would qualify for the homebuyer’s credit since you currently rent out property that you own.
If you were to buy a new home this year, you might qualify for the credit. The IRS defines a first time homebuyer as a taxpayer who has not owned another principal residence at any time during the three years prior to the date of purchase. If the property has been purely a rental property and not your principal residence, then I would say that you would not be disqualified. However, be prepared to back up your residency claims – hopefully, you’ve been reporting rental income for the past three years!
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.
Have a question? Ask the taxgirl! – Now on Facebook!
Taxpayer asks:
Does a duplex qualify as a main residence for first time home buyer credit purposes? If the person is going to live in one unit and rent the other unit do you have to allocate the purchase price for calculating the amount of the credit?
Taxgirl says:
Assuming that you otherwise qualify for the first time home buyer credit, the answer to your question is yes so long as the home is your main home. The IRS considers your main home where you live “most of the time” – that means that vacation properties or second homes would not qualify. But you are allowed to rent out part of your “main home” and still claim the credit, so long as the other requirements are met.
One quick caveat: Descriptive terms for real estate vary from place to place. I live in Philadelphia where each half of a duplex/twin is a separate residence – it’s described differently on the deeds and taxed as a separate parcel. Down South, where I grew up, a duplex is one parcel that’s divided with separate entrances. I am assuming that you mean the latter. Obviously, if you’re buying two separate residences – even if attached – both would not qualify as your “main home.”
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.
Have a question? Ask the taxgirl! – Now on Facebook!
