Issues with income from sharing a home

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dm200
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Issues with income from sharing a home

Post by dm200 » Thu Mar 20, 2014 8:29 pm

I have an acquaintance who owns their home and is considering having one other person move in and pay some reasonable amount to the owner each month. The "issue" is whether there are legal/acceptable ways of not declaring such payments as "income" for tax purposes. For various reasons, declaring the payments as "income" and depreciating a part of the home, as well as deducting expenses is neither possible not practical in this case.

While just "charging" rent (and not declaring it as income) is almost certainly not in compliance with the "letter" of the law (and tax rules), it seems to me that the other person could just choose to pay, directly, some of the costs of maintaining the home - such as utilities, shared furnishings, and so on. Any ideas if that would be "acceptable"?

Retread
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Re: Issues with income from sharing a home

Post by Retread » Thu Mar 20, 2014 8:49 pm

My opinion, which I have expressed in other threads, is that the tax law never intended to include arrangements such as this, in which expenses in living arrangements are shared. I don't think this is any different than many other transactions in daily life such as buying someone lunch or picking up a tank of gas. These are not transactions entered into for profit and neither is sharing the expenses of a dwelling. There is such a thing as trying to be "Holier than the Pope".
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pjstack
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Re: Issues with income from sharing a home

Post by pjstack » Fri Mar 21, 2014 2:04 am

Retread wrote:My opinion, which I have expressed in other threads, is that the tax law never intended to include arrangements such as this, in which expenses in living arrangements are shared. I don't think this is any different than many other transactions in daily life such as buying someone lunch or picking up a tank of gas. These are not transactions entered into for profit and neither is sharing the expenses of a dwelling. There is such a thing as trying to be "Holier than the Pope".
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travellight
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Re: Issues with income from sharing a home

Post by travellight » Fri Mar 21, 2014 2:39 am

It would seem to me that contribution applied to utilities would not need to be reported as income but I am not a tax professional.
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SnapShots
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Re: Issues with income from sharing a home

Post by SnapShots » Fri Mar 21, 2014 9:51 am

pjstack wrote:
Retread wrote:My opinion, which I have expressed in other threads, is that the tax law never intended to include arrangements such as this, in which expenses in living arrangements are shared. I don't think this is any different than many other transactions in daily life such as buying someone lunch or picking up a tank of gas. These are not transactions entered into for profit and neither is sharing the expenses of a dwelling. There is such a thing as trying to be "Holier than the Pope".
Bruce
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+2

Our daughter and two grandkids live with us. Daughter pays half the utility bills, property tax, insurance. We pay for cable TV and Internet service. She has us on her iPhone plan. Charge rent or split bills.... But

Don't involve the IRS
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sscritic
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Re: Issues with income from sharing a home

Post by sscritic » Fri Mar 21, 2014 9:56 am

SnapShots wrote: Charge rent or split bills.... But

Don't involve the IRS
Charge rent and split bills are different words for different concepts. I would involve the IRS in one but not the other. That's because they are different concepts legally (in my untrained not so legal mind).

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cheese_breath
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Re: Issues with income from sharing a home

Post by cheese_breath » Fri Mar 21, 2014 9:59 am

pjstack wrote:
Retread wrote:My opinion, which I have expressed in other threads, is that the tax law never intended to include arrangements such as this, in which expenses in living arrangements are shared. I don't think this is any different than many other transactions in daily life such as buying someone lunch or picking up a tank of gas. These are not transactions entered into for profit and neither is sharing the expenses of a dwelling. There is such a thing as trying to be "Holier than the Pope".
Bruce
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Make that a cheese_breath of fresh air. :D I don't believe sharing living expenses are meant to be taxable.
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Re: Issues with income from sharing a home

Post by Jack FFR1846 » Fri Mar 21, 2014 10:02 am

SnapShots wrote:Daughter pays half the utility bills, property tax, insurance. We pay for cable TV and Internet service. She has us on her iPhone plan. Charge rent or split bills.... But

Don't involve the IRS
So who gets the deduction in property tax if she's paying it?
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sscritic
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Re: Issues with income from sharing a home

Post by sscritic » Fri Mar 21, 2014 10:05 am

Jack FFR1846 wrote:
SnapShots wrote:Daughter pays half the utility bills, property tax, insurance. We pay for cable TV and Internet service. She has us on her iPhone plan. Charge rent or split bills.... But

Don't involve the IRS
So who gets the deduction in property tax if she's paying it?
No one. Only the owner who pays gets the deduction. You can't deduct taxes you don't owe, and you can't deduct taxes you don't pay. I could find a good reference, but my soap is heating up. So much lying! (Maybe that's where I get my inspiration.)

Edit: what does half entail? My grammer ain't so well.

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SnapShots
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Re: Issues with income from sharing a home

Post by SnapShots » Fri Mar 21, 2014 10:13 am

Jack FFR1846 wrote:
SnapShots wrote:Daughter pays half the utility bills, property tax, insurance. We pay for cable TV and Internet service. She has us on her iPhone plan. Charge rent or split bills.... But

Don't involve the IRS
So who gets the deduction in property tax if she's paying it?
So, who gets the deduction when rent is paid? Isn't rent based on the costs of living?
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Re: Issues with income from sharing a home

Post by sscritic » Fri Mar 21, 2014 10:16 am

SnapShots wrote: So, who gets the deduction when rent is paid? Isn't rent based on the costs of living?
I have never heard of deducting rent. How do you deduct rent on your tax return? Are you a business renting a building?

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Re: Issues with income from sharing a home

Post by Jack FFR1846 » Fri Mar 21, 2014 10:19 am

Sorry.....typing while reading. Who gets the property tax deduction?
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cheese_breath
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Re: Issues with income from sharing a home

Post by cheese_breath » Fri Mar 21, 2014 10:26 am

sscritic wrote:
SnapShots wrote: So, who gets the deduction when rent is paid? Isn't rent based on the costs of living?
I have never heard of deducting rent. How do you deduct rent on your tax return? Are you a business renting a building?
Not really a deduction, but in Michigan some people get a partial refund of their homestead property taxes (based on a number of conditions) when they file their state income tax. If they rent instead of owning a home they may get a partial refund of the property tax portion of their rent payments.
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Re: Issues with income from sharing a home

Post by sscritic » Fri Mar 21, 2014 10:27 am

Serious answer. If you rent out a property you own, you report your income on Schedule E, which is where you take deductions against the rent received for your expenses, including interest, property taxes, and depreciation. In this case, you, the owner, pay the taxes on the property you own and can expense those taxes on your Schedule E.

If you rent out part of a property you own, you end up splitting things into rental use and personal use, rental expense and personal expense, etc. There are rules to follow.

However, if your daughter owns a property and you pay her property taxes for her, no one gets the deduction. She didn't pay, you didn't own. Now if you give her a gift and she then pays her own property taxes using whatever money she finds in her checking account, she gets the deduction.

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SnapShots
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Re: Issues with income from sharing a home

Post by SnapShots » Fri Mar 21, 2014 11:14 am

sscritic wrote:
Jack FFR1846 wrote:
SnapShots wrote:Daughter pays half the utility bills, property tax, insurance. We pay for cable TV and Internet service. She has us on her iPhone plan. Charge rent or split bills.... But

Don't involve the IRS
So who gets the deduction in property tax if she's paying it?
No one. Only the owner who pays gets the deduction. You can't deduct taxes you don't owe, and you can't deduct taxes you don't pay. I could find a good reference, but my soap is heating up. So much lying! (Maybe that's where I get my inspiration.)

Edit: what does half entail? My grammer ain't so well.
sscritic, you really get hung up on co-generational living or shared living costs. So Much Lying!!???? Half, 2/3rds, 3/4ths...what does it matter? Your "grammer" isn't much better than your spelling. You make no sense.

FYI .. or Education: The owner of the property takes the property tax deductions. I have rental property. The renters pay all my expenses: insurance, property tax, repairs, yard maintenance. I take all of that off on my rental income and sometimes personal income taxes. Just because the renter is paying property tax, does not allow them to take it off their taxes.

Our daughter lived rent free in another house we own before moving in with us, but she paid all the bills: insurance, property tax, etc. This was not considered a rental because we did not have rental income and we could not take property tax or another maintenance costs off on this property. It's just something we provided to a family member.

We have a second home. Our daughter and grandchildren use this property for vacation purposes. She is not charged any vacation rental fee nor does she help with any expenses. It is not a rental unit. How should we handle this? Should we record it as an annual gift to her for the IRS? :oops:

When college kids bounce back home and parents charge them rent ... isn't that rent to help offset housing costs which includes property taxes. Or, perhaps it's to make the child know they have some responsibility in life, even if they move back home.

Our daughter and grandchildren live in a home DH and I paid for. A home we maintain and have owned for 25 years. She shares the cost of the basic bills. We could add these bills up and set a monthly shared cost of living amount. Or, we could just split bills as they come up. That's how we have chosen to do it.

Of course we take our primary home's property taxes off our taxes .... DD does not own the home. DD's cost of living expenses are greatly reduced because she does not own a home and all the costs that go with it. Should she have to declare unearned income because she pays no rent? :oops:
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Re: Issues with income from sharing a home

Post by sscritic » Fri Mar 21, 2014 11:23 am

I know what the word you means. I also know what the word paid means, as well as the word own.
Include taxes (state, local, or foreign) you paid on real estate you own that was not used for business
You pay, you own. No more, no less. Now you might make up your own tax law, but I try to stick to the instructions as I read them. I won't tell you which instructions I quoted because I doubt you would bother to read them.

P.S. you still haven't explained if half was meant to apply to all three terms or just the first.

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Re: Issues with income from sharing a home

Post by stan1 » Fri Mar 21, 2014 11:41 am

SnapShots wrote: Of course we take our primary home's property taxes off our taxes .... DD does not own the home. DD's cost of living expenses are greatly reduced because she does not own a home and all the costs that go with it. Should she have to declare unearned income because she pays no rent? :oops:
Snapshots: I agree with most of what you write and I don't believe that sharing housing with family members is a business arrangement and I don't believe the IRS is interested in people's shared living arrangements (parents/children, unmarried partners, elder care, etc.). HOWEVER, you need to write the check for the property tax and mortgage interest if you are deducting those items from your taxes. Let your daughter pay for utilities and maintenance items which aren't deductible.

Either run it like family members sharing costs or run it like a business; you can't pick and choose the advantages of each. That's when the IRS gets interested. The owner of a first and second home is entitled to deduct mortgage interest and property taxes that YOU pay, not what someone else pays. You cannot depreciate or deduct other expenses unless you are renting the property as a business (and declaring income).

What's the difference between renting and sharing expenses for a room in a house? Well one differentiator I might use is whether the vacancy is publicly advertised or offered to a family member/friend. Of course I'm not the IRS but advertising to me is an indicator of business activity that's different than if some friends decide to live together.

I realize there is a group of people on here who believe sharing living expenses is tax fraud; I don't believe they are right.

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Re: Issues with income from sharing a home

Post by SnapShots » Fri Mar 21, 2014 1:43 pm

stan1 wrote:
SnapShots wrote: Of course we take our primary home's property taxes off our taxes .... DD does not own the home. DD's cost of living expenses are greatly reduced because she does not own a home and all the costs that go with it. Should she have to declare unearned income because she pays no rent? :oops:
Snapshots: I agree with most of what you write and I don't believe that sharing housing with family members is a business arrangement and I don't believe the IRS is interested in people's shared living arrangements (parents/children, unmarried partners, elder care, etc.). HOWEVER, you need to write the check for the property tax and mortgage interest if you are deducting those items from your taxes. Let your daughter pay for utilities and maintenance items which aren't deductible.

Either run it like family members sharing costs or run it like a business; you can't pick and choose the advantages of each. That's when the IRS gets interested. The owner of a first and second home is entitled to deduct mortgage interest and property taxes that YOU pay, not what someone else pays. You cannot depreciate or deduct other expenses unless you are renting the property as a business (and declaring income).

What's the difference between renting and sharing expenses for a room in a house? Well one differentiator I might use is whether the vacancy is publicly advertised or offered to a family member/friend. Of course I'm not the IRS but advertising to me is an indicator of business activity that's different than if some friends decide to live together.

I realize there is a group of people on here who believe sharing living expenses is tax fraud; I don't believe they are right.
Stan 1,

I do write all the checks. At a later date daughter pays a shared part of the expense.

Some people get hung up over property taxes or mortgage interest. The person who owns the property takes the PP taxes off their taxes. Or, mortgage interest if there is a mortgage.

I agree with you ... real-property should be treated like it's being used. It is not tax fraud when a friend or relative pays the bills they have incurred because they live in a property you own.

It is tax fraud if you own rental property and you do not claim all rental income earned. Why? Because you are taking rental property deductions off of the rental income ... to reduce your taxes. If you don't have enough rental income to offset your loss, some of the loss deductions can be taken off on your personal income tax. Those deductions include all associated maintenance costs, property taxes, interest paid, depreciation, etc. Not claiming rental income to reduce your tax liability is: Tax Fraud.

Just a House: My mother, also, lived in the home my daughter lived in rent free. For my mother, we paid the utility bills, insurance, property taxes and maintenance. There was no mortgage. Mom paid the HOA dues, TV cable and yard. Later we picked some of those up bills. This WAS NOT A RENTAL it was just a house my mother lived in.

We could not legally and did not deduct any costs against this property. Why? There was no rental income.

We could not deduct property tax or mortgage interest off of our taxes. Why? It was not a primary or second home or a rental. You can have only one second home.

Later we could have turned it into a rental by charging rent and taking the allowed deductions. Instead we sold it.

Second homes: You can deduct property taxes and mortgage interest on a second home, like your primary home. If you want to, you can let relatives or friends live in that home rent free. You can pay all the bills or let them pay the bills. Or, you can have the friend or family member pay you a monthly, bi-monthly, annual amount to cover expenses.

Even though the friend or family member is reimbursing you for the your second home expenses; this is not rental income. Why? You are being reimbursed for expenses friend or family have incurred. And, because you are not taking rental tax deductions off your taxes: depreciation, maintenance, HOA fee, insurance, etc.

However, you can take property taxes and mortgage interest off a second home just like a primary home.

Or, you can change the second home into a rental property and then there is a whole new set of rules to follow. Just letting someone live, who pays the bills there does not make it a rental.

All this information is provided to our CPA. Family members who reimburses us for expenses they have incurred for living in houses we own is not considered income.

Likewise, we take no rental business deductions off the property we are allowing some one to live in ..... because it is NOT a rental.

You can legally take property taxes and mortgage interest off a primary and second home.
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