Charles Woodson- Mistakes With Family

When it comes to transactions between family members, the tax laws are frequently overlooked, if not outright trampled upon. The following are three commonly encountered situations and the tax ramifications associated with each.

Renting To A Relative – When a taxpayer rents a home to a relative for long-term use as a principal residence, the rental’s tax treatment depends upon whether the property is rented at fair rental value (the rental value of comparable properties in the area) or at less than the fair rental value.

Rented at Fair Rental Value – If the home is rented to the relative at a fair rental value, it is treated as an ordinary rental reported on Schedule E, and losses are allowed, subject to the normal passive loss limitations.

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