Does renting a room to an adult child qualify as being a landlord

13 Replies

Originally posted by @Ernesto Correa :

Hello,

I am currently renting a room to my adult child and was wondering if this qualifies me to be able and take the tax benefits of a RE "investor".

Thanks 

 Do you have an official lease? How do you accept rent payment? Is there a security deposit? 

An unofficial arrangement where your child gives you a few hundred dollars when they feel like it (and faces no consequences for not paying) does not make you an investor.

@Ernesto Correa you would need a lease, security deposit and some kind of proof of the rent being paid. The only advantage you would get is depreciation on % of your property but that could be offset by rental income. Check with your CPA.

You’d be much further ahead just collecting cash to pay expenses from the person instead of filing and claiming income hoping for a tax break or advantage . Asking for trouble trying get tax incentives on this deal  

Thank you all for responding...

 After some research i was able to find some guidance... You are afforded the same benefits as any landlord, (i.e. depreciation, operating expenses and such) with the caveat that it will only be a percentage of the total property. If you rent a room that totals 20% of the property, that will be the only deduction/benefit you'll be able to take. Again, as some of you have mentioned, there will have to be an official lease, security deposit and record keeping to qualify.

For the ercentage of the houae they are renting you can deduct expenses /depreciation. If you want to get them out it is an eviction if they pay rent.

Assuming your have 4 brms so you hope to claim 25% depreciation. IRS probably argues that there are actually 8 total rooms and your entitlement is much less. $600 a month as income or $7200 yearly income to be reported on your income. The depreciation needs to be recaptured later and there are ample opportunities to trigger an automatic audit.  The home office deduction was disallowed in the 1970s by IRS.  

I suspect tax filing for Fed and State forms and additional income tax will offset the savings. Talk to your CPA.


I may be wrong but in this situation I think it would be just as beneficial to take whatever they pay you as cash. This you could probably get away with not reporting as income, and could use it to pay down your principal faster or save towards additional investment properties. I think trying to set up a lease for depreciation wouldn't be worth it in this case.