We are considering renting a room to one of our siblings temporarily. She’s moving out here for a new job, and since we live in an pricey area living with us will offer her a way to save up some money. On our side, we are two people with four bedrooms, so we have plenty of room right now.
Of course, horror stories abound when renting to family members. I don’t know what to say about that. I don’t foresee it being a problem as we are pretty close, and we are all responsible professional adults, but I’m sure everybody else says that as well. Being that we recently rented a unit from a another family member successfully, I also feel good being able to “pay it forward”.
The Plan
We would collect “rent”. The idea is that she would pay 1/3rd of all utilities (gas, electric, water, garbage, cable, internet) plus some buffer for other miscellaneous household maintenance items. This obviously will be much less that what it would cost to share an apartment on the open market, let alone a studio. So she’s paying her way, but we aren’t making much profit if any, ideally preventing any guilt or resentment on either side.
The Problem: Fair Rental Price
But then I did some research about the potential tax implications. Is rent always taxable income, even if from a relative sharing a home? From what I can tell, the IRS says yes. (Someone please correct me if I’m wrong.)
However, if I am reading the IRS “Renting to Relatives” regulations right, the good news is that if I rent out the room at “fair rental price”, I can start deducting a portion of my expenses – including interest, taxes, repairs, maintenance, utilities, insurance, and depreciation. This has the potential to offset the rental income completely (resulting in no net tax owed), although I can’t create a loss since it’s my personal home.
The bad news is that if I don’t charge fair market rent, then I can’t deduct anything. 100% of the rental income is now fully taxable as passive income. Having to pay taxes on money that is basically covering the utilities just doesn’t sound right.
Solution?
From anecdotal evidence, I’m sure compliance is spotty at best in this area. What if a son pays $200/month to live with Mom and Dad? But to fall in line with the rules, it seems like I should either (1) charge something close to “market” rent and maybe buy her a nice gift later or (2) not charge anything at all. My idea was simply have her pay some of the utilities directly. This way I don’t actually accept any money. Any suggestions?
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If you deduct your home office, you have to regain the deduction when you sell your house. That is, part of the gain will be taxed at ordinary income and not the big exemption for primary residences.
I wouldn’t be shocked if this was the same. Not worth it.
It sounds like this will probably be a short term situation, so I would leave the tax man out of it all together. I would find it hard to believe that any deductions from this arrangement would be worth the time and hassle for the tax paperwork, never mind the risk of an audit for what is essentially just family helping family. It also doesn’t sound like you are trying to make a profit off of this arrangement.
I’d just charge her something reasonable to cover an extra person in the house (hot water, etc.) and call it good.
I think your bigger issue will be setting some expectations for how long this living arrangement will last and what (if any) rules you’ll have for her (bringing people home, smoking, etc.).
What about a family members willing to open there house up to there family for 1-night over Memorial weekend and the family members that owns there house asks there family for a tip with only certain people end up staying one night.. I truly think it’s rude to leave a envelope asking your guests ( family members) to leave a tip for the family member that owns the house that’s offered to open there house up since this whole family thats not able to no longer able to rent the log cabins that this big family always did for many years..It’s really nice of the one family to open there home up to there brothers and sisters in law along with nieces and nephews. Which with that being said only a few family actually ended up staying at the aunt and uncles house while the other family members that’s not staying ended up renting a hotel or they go on home to there house..I totally like like this family can’t afford to host 1full day and night and still feel like they should be given a tip..
Honestly, you are WAY over complicating things- you know not every income source need be reported to the IRS. Since the amount is so small, neither of you should worry about the hassle of reporting the cost or the gain to the IRS.
I have a couple income sources, which go straight to debts I facilitate for others. I sure as hell am not going to waste my time trying to explain to the IRS that my income sources are for debts which I own for other people. On top of that I also have investments which generate income that I never report to the IRS- way too much hassle.
I don’t know why your so interested in reporting something so minor to the IRS, unless it’s just for curiosity sake and something to add to the blog- any other reason escapes me.
What if you set aside the difference between FMV and her 1/3 of the utilities and then gifted it back to her when she moved out?
@Scoman: Sometimes, it’s about playing by the rules, no matter what you think of them.
Scoman: one reason to report all income: it’s the law. Also, you’re stealing from everybody else by not paying the amount of tax you’re suppose too.
Jonathan: If your primary source of income is from employment, then the chances of you getting audited is nearly zero. What ‘market’ rent is fairly arguable, and won’t be likely be challenged by the IRS.
Sibling rents could be categorized as a gift to you guys for letting her stay there. I’m sure the rent would not even come close to the limits.
As far as expenses – she’s just paying her own.
Don’t worry.
Also, I think you are doing the right thing letting your sibling move in. I think this is a big problem in the world. It used to be everyone helped the other members of the family get ahead – securing the family. Now, everyones out on their own.
Good luck!
Good luck had family members live with us 3 grown adults and only paid 500.00 a month.that was for food electric water toilet paper etc etc etc.
Based on the IRS guidelines you linked to, it seems that as long as the unit is your primary residence you shouldn’t have to claim anything.
The link made it sound like it applied to a person’s second home, vacation home, or home they only lived in periodically.
Just make sure she doesn’t write “rent” on the memo part of the check.
So, the disclaimer: Any information in this written communication was not written or intended to be used, and cannot be used as or considered written tax advice and should not be relied upon to avoid tax or any related statutory penalties assessed by any government, taxing, or tax enforcement authority.
I’m not sure that I agree with the previous commentor’s thought that these regulations only apply to second or vacation homes. However, let’s think about the parallel situation: when I was in college, one person paid all the bills. The other two wrote him a check for their portion of the bills. I would be shocked if the Service ever came back and said the first person had to pay income tax on that amount. (FWIW, we were listed separately on the lease, and our rent was assessed per person–we each wrote a check to the landlord each month, but one person administered the utility payments).
Your proposal is similar–you aren’t charging rent, you’re asking for a reimbursement of household expenses that theoretically increased because of having an additional person in the house. It would be no different than if you actually placed your relative on the utility contracts which made her personally liable for some portion of the bill; the only difference is you’re leaving that step out because it would be administratively difficult.
I think your case is stronger if you don’t fix the price–when it starts to look like rent, then it might be rent. Any agreement you draft would state that there is no charge for rent, but she would pay 1/3 of all base utility costs, plus items that she directly contributes to (e.g., long distance calls, pay per view or VOD movies from the cable box, etc…). And, then, keep documentation of all your bills–just in case 🙂
The other thing to keep in mind is that while you’ll be able to offset any expense from the rent against the income, there’s a good chance that you and your wife may make too much money to be able to write the loss off against your other income. I used to rent out a room in my condo, and from a tax perspective it was pretty good. The paperwork wasn’t too bad. The only part I found confusing came down to depreciation. I didn’t know if I should or could depreciate the share I rented out. In the end I decided not too, but I still don’t know if that was the right thing to do.
I agree with the other commentators about the hassle, but you never know when the IRS wants to swoop in and pick at details….
I’ve done this before with friends – even though I thought the friend was a ‘responsible adult’ who would never screw me, I came home one day and he was gone and he had bought a place across town (which he never mentioned previously).
I’d at least write down a general ‘lease’, it doesn’t need to be anything legal or crazy, but just a paper that spells out for both parties their understanding of the deal (apparently in my case, I didn’t get that he thought it was totally temporary and ‘on the fly’).
I’d write down:
– What rent is, when it’s due, how it’s to be delivered, how long the person is staying, how much notice they must give, and any idiosyncrasies of living in the house. All parties involve sign it. Simply writing down an agreement has a very powerful influence on all parties involved.
On your income note, what I’d do is get the rent in cash, spend the cash on things you’d normally spend your income or your business income in particular on. No need to report it since it’s a small amount and as long as you keep it in cold hard cash the only thing you’re forfeiting in the cash back you’d normally get (which is a heck of a lot better than 33-50%). Keep your regular money for the things you can deduct, and use the cash on items that are non-deductible.
But mums the word if you decide to do that.
Remember that you and your wife can give $24k of gifts a year without problem. Similarly, your sister can gift you and your wife a similar amount. The easiest way would be for you to allow her to life rent free, but that if she would like to gift you an amount equal to 1/3 utilities, you’d have no problems with it. Of course, you’d have to be okay with her not gifting you that money in case she decides not to, for whatever reason.
It is unfair for that person to pay 1/3rd utilities because there are more things that you do as a couple to contribute towards the utilities. For example, using the washer and dryer to wash ur curtains etc (just an example).
I would build utilities in the rent. for example, $600 and it includes all utilities, cable, internet etc.
Most of the times, that person is confined to their room, and all they use is the lights in the room, or if that person eats out a lot, why should they pay 1/3rd of your cooking bills.
I dont recommend paying for utilities directly. This would cause anger on their part when gas bill jumps from a typical month lets say $100 to suddenly $300. Even though when u see the overall picture, it still works out cheaper for that person, but eventually, that person will not see it that way. They will feel the pain, and will bitch and moan because they feel that you are causing the utility bills to go up.
Just accept cash and tell the IRS to pick on the bigger fishes!!
You’re charging a relative rent to live in your house? Terrible. What kind of family is that? What kind of post is this? Why not bash your sibling over the head, leave her bloody body in the gutter and steal all the money out of her wallet since you hate her guts so much and want her to be broke and suffering and in pain? I would never, ever charge a dime to anyone in my family for anything I ever offered them that belongs to me, for any reason, under any circumstances. Family=free. Rest of the world=pay as you go. In my family, we love and support each other, with respect, and we work together for our mutual success. Shame on you for even thinking about charging rent to someone you are related to. What the ?!?!?!
So what you are saying you would allow your relative to smash your car into a tree and not ask that they repair it, I realize that you are the generous sort but after a relative has lived with you for a while and has not contributed at all you may feel differently my friend….
My privacy is valuable. Also, maybe the homeowner can’t afford for their utilities to go up. Both parties should negotiate what they are comfortable with. Some of us are on a budget we can’t end up in debt and have the lights turned off!
I don’t work outside the home, neither does the family member. There’s a real life changer when you’re together all day. I won’t ask her to go to her room so it trully is a sacrifice and life changer. No other family members with larger houses will take her in so I say I deserve compensation & contribution alike.
In this world we have to pay to live. You must live in a fantasy world. You’re responsible for your kids anyone else shouldn’t expect you to support them!
Well in theory that is sweet.
We let our adult kids both set up mobile homes on our property, utilities are hooked to our hse, no need to pay anything. Years later, we started charging $200 per adult per month. This covered everything including maintenance on those mobile homes, trash, lawn, water heaters, food, etc.. After a few more years now we are covering everything they pay nothing, we make just enough to pay the Bill’s bit they are getting for their families $7K to $9K in tax refunds each year. They now skip their car payments (we cosigned), they don’t work, use loans to get through the year, have bill collectors every where looking for them.
FYI, the idea was to give them a couple years to save money and buy a house. All they did was marry horrible people, have children they can’t provide for and learn that food stamps gives them extra. They won’t let us claim their families on taxes because the work a couple months each year and get child tax credits. So we are drained, our finances shot and can’t hinder them much because they have small children. 15 years this has been going on.
Hind sight says should have charged from the beginning and maybe it would be different.
I’ve had kids move in short term and now has been 5 years . No help in the house no help in 10 acre yard no help . Food included. Been through two washers and dryers. All for 50 a week. My food bill is $60 a day . And there 3 adults . Feedback?
Take a look at IRS Publication 527 and read the section about renting part of a property. It has some examples about fair ways to allocate expenses. Also, you can deduct expenses up to the amount of the rental income even if you are not renting at fair market value. You cannot, however, use any of the expenses to offset other personal income unless you are renting at fair market value.
If this is a short term arrangement (say three months or less), I would let her stay as a guest with the understanding that she contributes to consumables (food, soap, toilet paper, etc.) Longer than that, you probably ought to charge a fair price and play by the IRS rules. Staying out of the IRS radar is a worthwhile goal in my book.
Quoting from IRS Pub 527 (p. 7):
“If you use a dwelling unit as a home during the year, how you figure your rental income and deductions depends on how many days the unit was rented at a fair rental price.
Rented fewer than 15 days. If you use a dwelling unit as a home and you rent it fewer than 15 days during the year, do not include any rental income in your income. Also, you cannot deduct any expenses as rental expenses.”
Since it says that “how you figure your rental income … depends on how many days the unit was rented at a fair rental price,” I would read the next paragraph as saying that if you aren’t renting out a room [read, at “a fair rental price”] for at least 15 days a year, you aren’t required to report any rental income (you obviously can’t take any deductions, either).
Of course, if you do go ahead a charge a “fair rental price” you can then claim deductions up to the amount of your rental income, and perhaps carry over any loss into the next tax year.
As I was reading this post something didn’t sit well with me and I think Xmasy hit it. I know you are looking at this as renting but no way a single person who will probably spend 99% of their time in their bedroom would use 1/3 utilities.
What if she/he said “I’ll wash my stuff at the local ‘mat?” or watches tv in their room with no cable or has their own cell phone?
I mean, you would be heating/cooling the place anyway right?
Why not just see how much the electricity goes up when he moves in and they pay the differene from the “norm”?
saladdin
Well, I think 1/3 of utilities is a bit much. She’s renting a room, not the house. I knwo how much my utliities are, and one other person doesn’t add %33 to them. She’s not going to affect what you set your HVAC at, so those costs are not additional. She really won’t use much more electiricity, certainly nothing worth a 3rd of your bill. If anything, she’ll add to your water bill. That’s the only one that I notice an increase in when I have family staying with me.
You don’t want to commingle personal and business property when there is a 250k exclussion for single (500k MFJ) from capital grains when you sell your home, provided you have lived in the home for 2 years as your primary residence.
There is nothing that said you have to charge your children rent. Have them live there and help out with the expenses.
Tax Advisor.
Collect rent in cash and call it a day. IRS who?
I think Hmmm had it right. IMHO, the best thing to do here is charge a monthly fair market rate in order to get all of the tax benefits/deductions. If you want to charge her less than a fair market rate. I would gift the difference each month or at the end of her rental term as a “congrats, your out on your own” type of deal. If you’re as close as you claim, then trust shouldn’t be a problem.
Doing business with relatives can be tricky. A business deal has strict guidelines and both parties are willing to stick by them and understand the consequences if they deviate. With family the relationship implies a lot more leeway and understanding, which is why these deals go south when they do; someone evokes “But we’re family!!” when it’s time to pay the piper.
That being said, just charge her a flat rate, and accept any losses or windfalls that go with it. It will cause less resentment then going over the bills every month deciphering who’s responsible for what.
Asking a relative to pay cash for letting them stay in your home will come back to haunt you in one form or another. Seriously, if your relative reads this blog and sees that you’re banking away $7K a month and now you’re gouging her for several hundred dollars more in utilities… well, you get the picture. On the other hand, as you just moved into a new house, I’m sure there are many items that you need that your relative can benefit from as well. I would explain to your relative that although you will not take money from her, it’s expected that each month she purchase a gift for the home. As long as she stays in the home – everyone benefits. When she is on her own two feet and ready to move into her own place, she should be allowed to take all those items with her. Years from now, she’ll appreciate the fact that you extended a helping hand – and you’ll realize that you did the right thing.
Unless I’m misreading your post it sounds like you are only charging her 1/3 of all the utilities. In that case, there is no tax implication since it’s a net zero gain.
When I rented a room to my sister I only charged her a few hundred bucks a month. It’s my sister – fair market was irrelevant. The IRS was irrelevant. She paid me in cash. The same will hold true when my kids are in there teens and might just happen to pay me for expenses – the IRS will be irrelevant in my mind. I’ll make up a spreadsheet showing all my child rearing expenses and claim that my daughter is simply paying my back on an interest free loan for raising her. HA!
-Wes
dog – I think you are right regarding the depreciation aspect of it.
JP and Hmmm – I am looking for a place that says cash gifts between siblings are not taxable, but all I can find is for spouses and parents?
Scoman – I am pretty by-the-books when it comes to taxes. If you charge $200 per month, then that’s $2400 per year. Even the limit for a 1099-MISC is a low $600 per year. Will the IRS ever find out? Probably not. I personally think I’m a prime audit candidate though, with self-employment income and all.
Re: Cash – Paying in cash is a good idea. Keep it simple, and then pay the bills with it.
Re: Charging rent – We have insisted on paying our way and then some when we were the renter, and not the “landlord”. You are still consuming resources, and we did not need the guilt of receiving charity. It worked out great for us, though maybe not for others. Family issues are always tough to make generalizations about. By “temporarily”, I mean this arrangement may last 1-3 years so it’s not just a few months.
Jonathan, Cash gifts of up to $11000 per year to anyone (doesn’t have to be a relative) are tax free. Between you and your wife, you can give your sister $22000 worth of free rent annually, and no need to report to the IRS. It’s only once you go above that that you have to report it on a gift tax return. I highly doubt a shared living arrangement like you describe would cost over that amount at market rate.
Regarding her paying for her share of the utilities and maintenance, that’s not income. She’s reimbursing you for expenses incurred. An analogy would be your employer reimbursing you for expenses incurred at work — that is not taxable income, and is not reported on your W-2 or a 1099-MISC.
I wish I was related to Noble Drusus, free room and board forever!
I rented a room to my cousin for 1 year and charged him just under market value. He was making more money than me at the time so I did not feel guilty at all. Then he started bringing home different “ladies” he met on the internet on a daily basis. Now I live alone and it’s going to stay that way.
PS: never reported a dime to the IRS and not at all worried about it.
I would be inclined to view the utilities as a gracious gesture from one family member to another (unless there were blatant abuses like telephone, absurd electricity usage, etc.). I would think everyone would be more comfortable with a set rental fee, especially if rents in your neighborhood would run considerably higher anyway. I would be happy to get the rent, report it appropriately as additional income, and throw it down on the mortgage as additional principal.
But, that’s just me …
Since you’re a by the book guy and want to report this money to the IRS, why not charge her the 1/3 utilities as you said, and then she can pay the resulting taxes as well. I’m sure this will still be far less than what she’d pay to rent somewhere else in your high cost of living area.
You still get the full 1/3 utilities with no loss to taxes, and she still pays less than she would elsewhere. Everyone wins.
As mentioned earlier, the net tax effect on this would be zero. Expenses > or = to the cash received, so drops income to $0.
dog referred to being taxed on the gain received from selling property that had depreciation. This may not apply in your case. He’s referring to Section 1245 property. Basically, the portion of any gain due to depreciation allowed or allowable is taxed at ordinary income the year the gain is recognized. Allowed or allowable just has to do with whether the depreciation was claimed (allowed) or whether you could have claimed it but chose not to (allowable).
You know depreciation won’t be claimed since the expenses already reduce the “rents” to zero. But, since your losses are not allowed, does this mean that the depreciation is not allowable? Ask your tax advisor about that.
BTW, there’s no gift here. Because you haven’t opened your room to the public or offered it up for rent at market rates, you are not giving her something of “giftable” value, as it pertains to IRS.
It amazes me how much peoples’ customs and values affect what they believe others should or shouldn’t do — like whether people should “rent” to relatives. The way i look at it, if the sibling is able to stay there for less than she’d pay at other places, she’ll probably be very happy about her arrangement. But how i think she will feel about paying rent to live there doesn’t matter — as long as she wants to stay there and Jonathan wants to let her stay, who cares about what we think? Some commenters sound like they know Jonathan’s sibling better than he knows her himself.
I think it’s very nice of you to have your sister stay with you — I’m sure she’s saving a lot of money. 1/3 of the utilities I believe is very fair for you to do — considering you live in a very high price area — I really don’t get other people judging that as high. 1/3 of utilities in my case would be less than $200 a month (my utilities average about $600).
$200 a month is a ridiculously low amount of money to live anywhere. You can’t even stay at college for that cheap — give me a break.
Anyway, I would just estimate this amount and keep it the same every month. You don’t want to go over every electric bill with your sister, right? And as far as claiming the income — is she going to claim rental expense on her tax return? If she’s not, I would just keep this amount between the two of you under miscellaneous. It’s like she’s taking you guys out to dinner 4 times a month, and you are having her for dinner the rest of the time. I’m all for being up front, but family living with you, sharing your living space and kitchen and bathroom and everything else — that’s not exactly a rental. I don’t see how you pro-rate her use of the kitchen, etc., it doesn’t really make intuitive sense. She’s staying with you guys and helps out a little. I just don’t see this as taxable income.
I kind of agree with scoman, mimi, alex, and others. The IRS already has their dirty little hands so far in your pockets it’s not even funny.
I agree with dpjax. I’m all for following the rules, but that’s just silly.
Don’t forget that renting your home may have property tax implications if owner-occupied property is treated more favorably than other types of property. If you are involved in renting to the extent that you are taking depreciation with respect to your income taxes, be aware that the IRS has info sharing agreements with some if not all states, which allows cross-checking of tax information.
I would agree with building the utilities into the rent to some round numbers, like $500 or $600 a month. This is probably reasonable but below market for your area. Take cash and use them for groceries, dining out, shopping and misc and not worry about the IRS. I think you’re pretty safe. They do have bigger fishes to fry.
Is it honest and legal? Technically probably not, but you’re helping out a relative who would have otherwise pay a lot more on his or her own. The tax factors for things like this is such a hassle in my opinion. Unless you’re planning to run for public offices someday, I’d say you’re pretty safe.
I didn’t know about the $11,000 per year gift rule, thanks for that info.
I am not a tax guru, but it seems that you aren’t renting a room, but rather taking money for expenses incurred. Isn’t that different?
Also, if you aren’t in need of the money yourselves and are as close as you say to your sister, why not bank the money and give her the interest when she moves out to help with security deposit / down payment.
3 years is not that temporary. My guess is that she really needs the place to stay and I think it is great that you are opening your home. I have been trying to get my sister to fix up her garage for me so that I can move out to California. It is an expensive area to transition into in the beginning of your career.
theman: it’s the law? wow, way to show how much of simpleton you are- I bet you’d be one of those scream “it’s the law” as your wife is rapped because your were a commoner in noble lands and the English had every legal right to her… lol… way to hide behind FUD and say absolutely nothing. Yippie for intelligence these days!
Jonathan: I’m rather by the book as well, although I don’t cow-tower to “the man.” Like the rest of the sheep in this country. However if you have additional risk, it MAY be prudent to further mitigate by not increasing that risk. However, whats the penalty? A partly sum of taxes you owed for that particular “over site.” IF you get caught, seems less risky than running a blog ;).
um, rent without reporting it. It’s not the government’s business.
You will not be caught because they can’t prove it and won’t bother trying.
As Hmm and S have said, call it a gift and simplify your life. Unless your utility bills total more than $22,000 a year in which case you need to share your home with a polygamist sect!
I think you are making it too complicated. You are being reimbursed for expenses / she is just paying her share (like a roomate situation) there is no ‘renting’ or taxable income.
We have an older family member living with us. The small amount she gives us each month includes all food (excepting her own occasional splurge), utilities, and wireless internet.
When I asked my tax preparer about it and explained it was for reimbursing expenses incurred, she advised to not worry about reporting. So, we don’t.
Also, one person can make a large difference in utility expenses. I try to be economical in our expenses. She chooses to use electricity in ways we otherwise wouldn’t. The only thing that keeps me sane about it all is that I know she’s paying for her own expenses and her wastefulness is not coming out of my own pocket.
I don’t think anyone mentioned whether you _can_ “rent” this room to her. In our town there are zoning restrictions that prevent you from renting out rooms of “single family dwellings.” Check before you start claiming your new rental property on your taxes.
However, having family members staying in the house and occasionally chipping in, say $200 a month, to cover their share of utilities and treat their siblings to some nice food…that’s OK.
I’m an accountant fresh off tax season. Out of all the Schedule E’s I filled out (probably 15% of the returns I filed included a Sch.E and I did 10 returns a day), EVERY single one had enough expenses to wash out the rental income. Just take a deduction for 1/3 of all your household expenses and you’ll be fine. Just remember to break out real estate taxes and mortgage interest from your total mortgage payment (I had some people coming in trying to deduct their principal payments).
I need help regarding my rental situation. My uncle who is 67yrs old has been living with us for a year. He uses the electric/gas in the house more than we ever did. Our t.v is on from 6:00 a.m until 9p.m. He is ruining my furniture because he sits in one spot all day long. I cook, clean,shop, take him to appts. basically everything, like I am his mother. We give him basically 24hr care like he is our child. How much should he be paying? He has more than enough to pay.
You might be able to claim him on your taxes depending on where you live. I mean you are providing care for a senior but seems like you need assistance with that cuz it has taken a toll on you. There are also some professionals like care aids who will come and provide these services for him. Even if its for few hours you’ll get a break. Get him to hire someone or hire someone & get him to pay for it. This might give you time for self care seems like caring for him is tiring you out. You can simply charge him the rent that is going on in your area for bedroom shared rental(ours is about $300/400 along with him paying for gas when you take him for appointments+ 3 meals a day+3 snacks a day, buy his groceries & hand him the bill or get him to buy his own groceries when you take him for appointments. As per your furniture once he pays the rent it may not bother you as much or get him to buy his own comfortable chair & get it delivered to your place. Get him to share the cable, Gas & hydro bill( if you got 5 family members he pays for 1/5 of these bills). The amount he should pay will be very similar amount for stay home students(look on Craigslist , talk to ur local schools or families who have foreign students staying with them(our relative said it was about 800/month in B.C. or few hundred dollars less than foster parenting.
After living in this country (which I adore) for 20 years, I still cannot get over the fact that Americans charge rent to their relatives!!! Throughout the rest of the world, if your relative needs help, you are going to help them if you can, and you would not even think about asking for the money. Hey, you are helping them…right? The thing that gets me the most is that the parents here charge THEIR OWN children rent! Then, everybody wonders why there are here so many eldelrly people that live and die alone, even though they have children!!! MONEY IS NOT EVERYTHING IN THIS LIFE!!!!!!
Helping family members is great if your appreciated and your not spending every penny you have to take care of them. There’s a huge cost difference between caring for a person in your home vs. a nursing home. What’s even more sad is when the person your caring for is claimed medically incompetant and you can’t do anything about it unless you take them to court. If anything, there should be a Caregiver abuse law for people who do help family members to protect themselves against people like family who don’t acknowledge everything one does for them cannot all be for free!
We have my sister in law with us, she is 21 and has been there going on 5 months – we do not charge her anything however that said we do feel a little taken advantage of she does work and go to school but she has not contributed one nickel towards anything – I’m just thinking maybe take us out for an occasional pizza or perhaps when doing her laundry maybe buy an extra bottle of detergent same thing goes with shampoo, toothpaste, toilet paper or drink the last of the milk replace it oh and don’t be a slob…what I thought was helping someone out I learn that it’s not really appreciated..she takes advantage of the situation and when her six months is up she is out of there…we would have let her stayed longer if she would have just been a little more considerate…
Noble Drusus is a fool.
There is no charity “umbrella” that falls onto all family members that allow them to live with us for free, just cuz they happen to be my blood.
That is absolute crap. NO FREE RIDES, teach your siblings what the real world is about. If you let a sibling (who is 25 and works full time) to live with you for free, she is using YOU…you are not using her. Fair market value is what I say..make it a win/win situation. My sister in law AND her kid live with us (cuz they can’t afford a place on their own)..so me and my wife charge her $700 a month, and she pays it, cuz market value is higher then that in our town , even for a studio. We don’t loose a wink of sleep over it….NO ONE uses us….or leans on us when they don’t deserve our charity…the sister in law put herself and her kid in a pickle by making poor life choices…i’m not bailing her out…she’s gonna PAY for her mistakes…at a tune of $700 a month….everyone over here is happy and safe.. Win/Win…don’t believe Noble’s words about family..it’s absolute crap…NO FREE RIDES in life (depending on circumstances).
It would be nice if there was clear IRS guidance on the differance betwwn cost sharing arrangments, roomate arrangments, and tennant arrangments when parrents live with thier children and pay their own way. It makes no sense to me to have a family member who has the means not to pay their own way. No freeloading! The IRS needs to leave well enough alone.
A realtive who needs to no isn’t that private. Then fact if you claimed, the write off would out weigh what your charging, peanuts. In the end how many people in the IRS are making false claims. My guess everyone is pure as the driven snow.
Many realtives maybe on a minmum pension. Then if you take him in a put a roof over there head. Depending on the conditions if anything the IRS should pay you for would you not be saving them money. If Govenrment had to put them up say if they were homeless.
I doubt there are any tax implications since the income you are receiving is less than the expenses. Your sibling is simply a roommate, period. You are sharing the expenses of running a household.
You mentioned that you are only charging 1/3 of the utilities. I think this is way too cheap. What about the mortgage, property taxes, insurance, homeowners association fees? You should factor this into the rent also. For the utilities, I would take take the average monthly cost over the course of a year and come up with a fixed monthly dollar amount. This way there are no surprises during the more expensive times of the year. You may want to add a little bit on the top for maintenance and repairs. Once you add up all of these number, take a look at Craigslist for room rentals and see how your numbers compare. If the number you come up with is less than the going rate, then charge this amount. If your number is higher (due to a large mortgage balance), then I would limit it to the market rate.
Don’t forget that your sibling is also responsible for contributing to the grocery bill too. You should never feel guilty about charging for a person’s fair share.
Depends who this person really is. Do they help out? Do more than their fair share? Or are they lazy and make you go out of your way for them? Charge them accordingly. Afterall they are a family member, not just some random stranger.
My father-in-law just moved in with us a few months back. He is on a very limited income and was paying $700 plus utilities at his old appartment. He pays us $400 cash which includes his elec, gas, water, cable, internet, garbage, lawn, etc. The only things that he pays for is his landline and his own food. Based on everything that I have read so far, I think that as long as we consider it a cash gift from a parent then we are fine as far as the IRS is concerned.
For those that think that family=free, you are crazy. This is real life and nothing in real life is free. Fair market value for what my father-in-law lives in is much higher, but because he is family he gets a discount, not free.
What happens if his income is low enough for fuel assistance but he can’t get it because he has to pay out 800 hundred dollars to meet the guidelines and now if he does that that will throw his family member into having to file a tax form as taxable income which they don’t want to get into that part with the IRS when all their trying to do is help him out but he’s the one losing out on the benefits for having an income below his means. Can anything be done for that?
I have an adult relative and her child living with me. The kid is great but the adult is the equivalent of Hitler. I offered her a place to stay because they were homeless and it has been utter hell. For the first five months I charged nothing, picked her kid up from school and bought food. She has been rude, loud, hateful and just walks out of the house anytime she pleases and leaves the kid for me to watch without even asking. I am now about to place her on a lease and set some house rules. She has even told me that she will refuse to sign a lease and won’t leave voluntarily. She told me since I invited her there, I’m responsible for her well being and I tricked her since I’m now asking for rent. I will end up evicting her it looks like.
I have a sibling that has been living with my Husband and I on and off again for the past year. When she leves here she will stay with a friend here and a friend there. In her forties, she has been mostly unemployed for 4 years and has stated to me that she really does not want to work. She has made one bad decision after another and although she claims to be looking for a job, and constantly says “I need a job”! It seems her efforts to this end are minimal. We are now paying for everything, her food , coffee, toiletries… everything. We are hard working people and she is proving to be content with a free ride and no place of her own to call home. I estimate the having her stay in our home, eating our food, drinking our drink, using our appliances, bathing, etc costs us a very lowball estimate of 10 dollars a day. So we pay an additional $300 a month to have her here. I am building up resentment and trying to decide what to do to make life more tolerable. I constantly feel like I am going to explode.. but I repress it all. I am miserable. She has endless excuses as to why she cant get a job. But if I were in the same position I would do anything and everything I could to support myself. Every suggestion I have made falls on deaf ears and the response is hostile. We also loaned her money ( a fairly big chunk no interest of course) 3 years ago and have not had a dime repaid. We are not wealthy and it is affecting our finances. I really do not know what to do and feel like Im stuck.
My step-son has lived with us for almost 8 YEARS! DO NOT let a relative or friend move in. EVER!!! I will probably have to leave my wife to get him out of my life. We’ve been married almost 32 years, but this has gone on WAY TOO LONG!! Don’t make the mistake I did. My wife told me at the start that he’d only be with us a month or two. Yeah right. Oh, and he has a full time job to. He has matured to about age 12 thanks to momma. Disgusting!!!
Suzy Orman said it best when asked by a couple who wanted to let their parents live free in one of their rental properties. They were required to charge FAIR MARKET VALUE (FMV) on their rental. They established a rate of $1,000 per month. So Suzy told them to make a gift to their parents of $12,000 (you can give up to $14,000 per year per individual -2014). The donor and recipient do not have to pay gift taxes on that amount. They could give up to $28,000 per year if we are talking about a mother and father situation. So if a relative or friend is living in part of your residence then treat any payments received as a gift as long as it doesn’t exceed $14,000 (multiple gifts could apply to another individual (spouse) if the amount is over. Just document things if you are ever audited and never refer to the money as being for rent. You can still have a written agreement for any damages suffered as the result of someone doing damage to your property.
I have a second home which I have never claimed in my taxes. My sister lives there and makes the mortgage payment directly to the bank. Can I start claiming the interest on the mortgage and property taxes now? I do get the proper documentation from the bank and county just never included it in my taxes for the past 3 yrs.
I searched this to find what everyone else was thinking. I had taken my aging father in about a year ago. The one sibling that I have who had originally helped stopped doing so after 2 visits. Putting him in a facility will cost $6800/month. Yeah, I thought it was ridiculous too when they told me. So, what’s wrong with charging 80-90% of that for us to take care of him? No one else is going to do if for free. Why should we pay taxes on his income when he already paid it? It is post-tax household income.
Hello, I just joined because I have a question I can’t seem to find an answer on the web. I have made an arrangement to help someone relocate to another state. The arrangement is that for my assistance the other party would “pay” my relocation/daily expenses and room & board, (until I have gained employment & residence. What are the legal &tax ramifications and requirements for this arrangement to work. We partly wanted to do this so as I would still have a reportable income, ie “employed”. is this actually legal? your answer is eagerly anticipated. (we reside in Colorado if that makes any difference)
I know about exemptions as I deal directly with it and family members from time to time. You can call the IRS and provide them with details. The will step you thru the test to see what you can claim.
Reference:
https://turbotax.intuit.com/tax-tools/tax-tips/Family/Tax-Exemptions-and-Deductions-for-Families/INF12053.html
In 2015, you can claim a $4,000 exemption for each qualifying child, which may include your child or stepchild, foster child, sibling or step-sibling, or descendants of any of these, such as your grandchild. To qualify for the exemption, the child must live with you more than half of the year and be under 19 at the end of the year, or under 24 and a full-time student for the year (defined as attending school for at least part of five calendar months during the year).
Other relatives
Many families provide homes for relatives such as parents or grandparents, or support relatives who do not necessarily live with them. If you’re in this situation, you can claim a dependent exemption for a qualifying relative who is not a qualifying child, as long as the supported person meets all five of these criteria:
1.The person is either a relative or a full-time member of your household.
2.He or she is a citizen or resident of the U.S. or a resident of Canada or Mexico.
3.He or she did not file a joint income tax return with anyone else.
4.You provided over half of his or her support.
5.The person in question has less than $4,000 of gross income in 2015.
If your child is not a qualifying child because he or she does not meet the age/student test or the residence test, you may still be able to claim an exemption for the child as your qualifying relative, but only if he or she has gross income under $4,000 for 2015, and you provide more than half of his or her support.
Who’s a relative?
A person who has lived with you for the entire year as a member of your household can meet the definition of a qualifying relative even if he or she is not actually related to you by blood or marriage. But if the person did not live with you for the entire year as a member of your household, the nature of the relationship becomes important.
Here’s a list of people considered to be relatives by virtue of blood or marriage:
•Children, grandchildren or stepchildren
•Siblings, including half or step-siblings
•Parents, grandparents or any other direct ancestors
•Stepparents
•Aunts or uncles
•Nieces or nephews
•Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law
There are special rules for persons receiving support from two or more individuals and for children of divorced or separated parents. If you are in this situation, read IRS Publication 504: Divorced or Separated Individuals.
You and your spouse are also each entitled to a $4,000 personal exemption in 2015
http://www.irs.gov/pub/irs-pdf/p501.pdf
I’m staying with my sister I give her $400.00 for expense and food does she have to claim it
Interested to get opinions on my situation; I am a 56 yr old divorced and disabled woman . my 25 yr old daughter and her 5 yr old son moved in I am unemployed my only income is DSI . want her to payv$200/.m + 1/2 utilites. She has 1 rm and seperate bath she also has use of my assigned parking space. My condo is lovely and she has use of all amenities. She has been here almost 6 mos. Does this sound right? We talked about expectations but I neglected to document it. Please share thoughts.
This answer indicates that this is a tax-free situation:
https://ttlc.intuit.com/questions/2353352-my-father-receives-ssi-and-pays-me-rent-from-his-ssi-money-do-i-have-to-report-the-rent-as-taxable-income-even-though-that-full-amount-goes-towards-only-a-portion-of-the-utilities-payments-what-s-the-minimum-amount-of-rent-that-can-maximize-his-ssi
Can I ask you guys a question? Can my parents (old enough to work) rent a room in my house to show their residency in America? Surely, they will pay. Because they need to show the rent payment/ check as a proof of their residency.
You can do as my husband has done. Instead of charging his son, my stepson, any “rent” after moving back home for the third time, he told him that he must “contribute”a certain dollar amount towards food. This way, not calling it “rent”, it does not convey any legal rights to sue to the person living in your home. If there is ever a dispute, and you decide you want that person out of your house, they can’t take you to court for breaking a lease, even an “unwritten lease”. Remember, the court would normally look at how long a person was staying with you, and whether you charged them RENT, and they will look at the persons cancelled checks, and any other paperwork that might show if the person living in your home was paying other actual household expenses, such as the utility bill, water bill, etc, that would give that person “standing” to sue you. IF, the ONLY thing they were giving you was a contribution towards food, they have no standing to sue. And, you do NOT have to report “contributions for food” on your taxes, no matter how you end up spending that money.
Please, I am not suggesting that any disagreements between you and your sibling will arise at all, especially because you have already said that you’ve had a very good relationship with your sibling. I’d treat the situation as having a temporary visitor who wants to contribute to your home life while they are visiting. Besides, you are all professionals in the business world, and that usually implies you all have class! Enjoy your reunion, have a great time reminiscing about old times, and before you know it, they’ll be moving into their own place, and a bit of sadness might set in that they are leaving so soon! Holidays will come when you can all get together and talk about how much fun you all had when they stayed with you!!
Cheers!!