Investor · Louisville, KY · Member since 2014 · 74 posts · 46 votes
My mother-in-law would like to buy a condo but I’m not sure if she can afford what she really wants.
I am considering buying a condo and renting it to her for what she can afford. How can I do this and avoid the “personal use” trap? Any suggestions would be appreciated.
Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
7y
Subsidize her lifestyle by giving her money each month, which she then returns to you in rent. This is no different than if you took your rent profits and gave them to her to afford some other place.
Better yet, help her find something she can afford.
Or, let her live with you.
Wouldn't bother me one bit to rent to a family member.
Be patient and let her come to the realisation that she can not afford what she wants. She will then buy what she can afford and make the best of it. Steer her in the right direction if you must. What you do not ever want to do is rent to a relative. No good ever comes from it. You will regret it if you do.
Harper Woods, MI · Member since 2017 · 384 posts · 311 votes
7y
@William A. please take it from me i've done this twice in the past and neither worked out it always get messing and causes issues. Things would work out better if you helped pay her rent.
Investor · Louisville, KY · Member since 2014 · 74 posts · 46 votes
7y
Let me rephrase the question, since I did not get an answer to the question. What are the tax implications of renting to a relative - specifically a mother-in-law.
Let me rephrase the question, since I did not get an answer to the question. What are the tax implications of renting to a relative - specifically a mother-in-law.
Rent it at market rent, use a lease that you would use for other properties. Treat it like a business Lee things separate and keep it professional at all times.
And again to restate it for you from everyone, it isn’t a good idea to rent to any relative. But since that isn’t what you appear to be asking the above statement will suffice for you.
Check back in with this thread if it ever goes south.
Let me rephrase the question, since I did not get an answer to the question. What are the tax implications of renting to a relative - specifically a mother-in-law.
IRS is pretty clear, you need to rent the property at fair market rent when renting to family otherwise it is just personal use.
Looking at it from a practical manner, the IRS doesn't know you are renting to family. They would never find out unless you were audited in great detail. So it really comes down to what type of red flags the rent amount is raising. If fair market is $1200 and you are renting it for $1000, there is low risk of the IRS noticing. If fair market is $1200 and you are renting for $200, there is high likelihood it will raise red flags.
I would just avoid renting to family or friends for other reasons besides taxes.
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
7y
@William A. I would not help her to get something that she can’t afford. That is only going to cause stress having to pay more than she can really afford each month in rent. When she has unexpected expenses then she will be stuck. I would just encourage her to look at condos that she can afford.
Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
7y
Subsidize her lifestyle by giving her money each month, which she then returns to you in rent. This is no different than if you took your rent profits and gave them to her to afford some other place.
Better yet, help her find something she can afford.
Or, let her live with you.
Wouldn't bother me one bit to rent to a family member.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@William A. imo we have a moral obligation to care for our parents/spouses parents within reason if we have the means and they do what they are able to do financially, in other words, without enabling them. Your desire and willingness to help is absolutely right on. It's your wife's mother after all. ROI is NOT all that matters in life. I'm not sure the best/wisest way to help her but I Just wanted to say attempting to do so is an honorable thing to do. Perhaps the other siblings can pitch in to help offset the difference in what she is able to pay and the FM rent. For example if what she can afford is $600 under Fair Market rent, perhaps you eat $200 and the other 2 siblings each chip in $200/mo. Hopefully you can navigate this with wisdom and find the best way forward. Tough stuff.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@William A. let me add a caveat. It would be wise to think about what she needs vs what she wants, especially if it puts a financial strain on you to subsidize a lifestyle choice. She may need to readjust her expectations based on what she can actually afford, possibly with the help of the family.