Unreasonable Rent


Today TaxMama hears from David in the TaxQuips Forum with this question. “My mother has owned rental property for many years and she has a tenant in one side of a duplex that has been there about fifteen years.  My mother has always been reluctant to raise the rent on “good” tenants so this tenant is now paying less than half what others pay for similar properties.  Is my mother going to get into trouble with the IRS for not renting at or near FMV?  Thanks for your time and answer.” 

 Dear David,

I understand how she feels.

Believe me, having a good tenant makes life so much easier than having to turn the unit over repeatedly. And you never get property damage from good tenants.

And when the tenant lives right next door….? Having a good tenant like that can save your life, literally.

I know many people who have taken that approach to their tenants, rarely ever raising their rents. This only becomes a problem with IRS when the tenant is a related party – like a family member. If the tenant is a ‘stranger’ per se, you don’t have a tax issue.

I don’t know if you wanted me to give you an answer that would help you convince your mother to raise the rent. But if your mother is happy, and is getting as much money as she wants to get, leave the situation alone. She’s fine.

And remember, you can find answers to all kinds of questions about unreasonable expenses and other tax issues, free. Where? Where else? At www.TaxMama.com.

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