Rentals Sort of

Today TaxMama hears from Doug in Alaska who has this tale of woe. “We have an apartment downstairs, that my wife and I have rented for the last three years. We decided that rather than put my ailing father-in-law into assisted living we could set him up in our unit below, where hospice and other available medical help could assist. Since there was no income from the apartment, we are no longer able to depreciate the appliances we’d originally installed. There’s no income to offset the heating costs or electricity.

As you know oil, heat and the cold here in Alaska can put a big dent in a fixed retirement budget.

Hi Doug,

Here are some thoughts – and you can see if they work for you.

Consider having Dad pay rent on the apartment. You can charge him about 2/3 of the regular rent you would charge a stranger, and still not incur the wrath of IRS. And you can use the money he pays you to cover Dad’s costs. It’s just moving the money from one pocket to the other.

But this should enable you to depreciate everything, and write off the property taxes, interest, utilities etc.

You’re still likely to have a net loss, even after picking up the rent as income.

On the other hand, you can deduct the property taxes and interest as a second home, and stop treating it as a rental altogether.

You won’t get to deduct the utilities, but…at least you get some tax benefits.

It’s nice you two are being so good to him. It’s so miserable being in a hospital these days!

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