Could I Rent my Property to my Parents?

Question

The title is basically my question but with a couple caveats. I am a beginner so bear with me but lets say couple years down the line I have a booming rental business and I have the money now where I want to buy my parents a home, let's say for $1 million. Could I buy the property though my rental business to get all the tax benefits of doing this while charging my parents a stupid low rent, say $100/month. Firstly would this be legal? And secondly would it make sense for me to do it from a financial standpoint?

Nicole W. · Answer

I just googled renting to family members and here is one that came up. There are several of them. https://certifiedtaxcoach.org/five-tips-to-avoiding-the-tax-hazards-of-renting-to-relatives/#:~:text=Rent%20at%20Fair%20Market%20Value&text=If%20they%20rent%20below%20fair,for%20more%20than%2014%20days.

Basit Siddiqi · Answer

@Yash GautamTo get the benefits of rental real estate from a tax perspective, you need to charge market rent.

Aigo Pyles · Answer

Yes, you can definitely rent it out to your parents but not with that price. You may get in trouble.

Yash Gautam · Answer

Ok, I understand thank y'all for the clarifications!

Marian Smith · Answer

@Yash Gautam  Tax fraud if you file your taxes and claim losses or claim no profit on your rentals and had your parents paid a fair market rent you would have had profit to be taxed.

If you support your parents over a certain %, that is a tax write off.

Joe Splitrock · Answer

@Yash Gautam if you claim it as a rental property, you are required by law to rent it at fair market value. In the situation you described, renting a million dollar house at $100 a month would be considered tax fraud. In other words it is illegal.

Yash Gautam · Answer

Thank you so much!

Yash Gautam · Answer

Ahh ok that makes sense, if possible could you link me the article?

Nicole W. · Answer

I just read some article online about this. You have to ask an appropriate rent or you get taxed for not charging enough. Check it out with your lawyer and CPA.

Theresa Harris · Answer

You can buy and rent to your parents, but I don't know about the really low rent.  It may cause problems because you'd deliberately be losing money and could run into problems with the tax man.

Could I Rent my Property to my Parents?

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