Renting to family, any benefits?

Question

Just curious to know what benefits there would be to get a property and then "rent" (or actually rent) it out to your parents/siblings/etc? Any tax benefits? Is it even legal? What would make it illegal?  Thanks.

Nathan Gesner · Answer

Yes, it's legal. No, I don't recommend it. I have a policy that I will not rent to family, employees, or family of employees. There's a high likelihood they will take advantage of our relationship if push comes to shove.

Wanda Wilkinson · Answer

Yes, it is legal. DON’T do it. If they quit paying, your other relatives will not chip in, they will expect you to absorb the loss of rent. And you will be the bad guy.

Eric Gerakos · Answer

As others have said renting to family is asking for trouble.

Andrew Freed · Answer

@Uneeq Khan Mixing family and business rarely turns out well. I would recommend just avoiding this issue all together and not renting to family.

Cameron Tope · Answer

Hey Uneeq,

I've rented to family with success but as @Nathan G. mentioned, it's not a best practice.

Cameron Tope · Answer

Uneeq,

If you don't report the rent money as income, that's illegal.

To properly do it you'll have to divide the house into a portion for rent (and allowable depreciation) and a portion for personal use (not depreciable).

It get's hairy when you want to sell as you'll have to pay back depreciation recapture.

If you take the money as cash, and don't report it, then you avoid all these issues. However, as I mentioned earlier, that's illegal.

Consult with an accountant as I'm no CPA.

Best of luck!

Uneeq Khan · Answer

@Cameron Tope besides relationship issues, are there any pros or cons tax wise? Write offs and etc? And how would it be illegal?

Renting to family, any benefits?

Most Popular Reply