Rental property deductions?

[PJ249]

What is the name of your state (only U.S. law)? NC
We own a very small mobile home park and rent out two mobile homes we own and lots. We do not live on this property. We file a schedule E to report the income. When we purchased a MH we were able to add the cost to the property basis for amoritization(?) With the interest rates low, we have decided to purchase a new manufactured home to put on that property to rent out, with the possibility of eventually moving in ourselves when we retire in the next 5-10 years. However, our daughter has left an abusive marriage and is also being treated for a chronic illness. We have decided to let her and our grandchildren move in to the home (they currently live in another state). Her main source of income will be her child support until she finishes her degree and is healthy enough to work full time. We hadn't planned to charge her any rent. My question is: Can we still add the home's value to the property basis and can we deduct the mortgage interest, insurance, property tax, etc from the MH even though we are letting our daughter live in it? If not, could we do the deductions if we charge her a nominal rent of say $100 per month.

 

[FlyingRon]

Your best bet would get a tax preparer involved. I suspect you've already made mistakes that need fixing.

I have no idea what you mean by amortization in this context.

The price you paid (not VALUE) for the manufactured home will increase the basis of the lot/home combination. Mostly that comes into play when you sell the property (though it does figure into depreciation calculations, see below).

The houses/lots you are legitimately renting out you should be deducting the expenses of that business: taxes, interest, maintenance, insurance. You should also be depreciating them.

The house you are not renting at a fair market rent is not a business property. You don't get to take deductions on that as a business. If it qualifies as a second home for you, you can deduct interest and property taxes. You can not deduct insurance and routine upkeep and repairs (though you can add capital improvements to the basis).

 

[PJ249]

We have an accountant/tax preparer and do the depreciation ( I thought it was called amoritazation...I guess I used the wrong word) and deductions and business expenses for all you mentioned. The new home is not even on the property yet, but I was just wondering about this for next year's tax filiing. Who determines what a fair market rent should be? The other homes we rent are lower than many others in our area, but we are renting them to senior citizens with a very limited income. They cannot afford to pay more, so we haven't raised their rent over the years. We barely break even on the property expenses ( for example this past year we had to replace the enire sewer pipeline at a cost of over $13,000, so will probably have a loss). But this land was inherited by and has been in the family for several generations and makes enough to cover the property taxes, most years add a little to our income and gives the renters a safe, quiet place to live.

 

[FlyingRon]

If there are other properties in the area renting for close to the same amount that would be plenty of justification. Renting to your kids for $1 when nearby units are going for $300/mo would not. The presumption is that if you are conducting a business, then you charge something along the lines of a market rent. If you're operating a charity, the deductibility changes. Most likely as long as you do not take a loss against other income, you'll not raise suspicion that your rents, if they are anywhere near reasonable, are not appropriate.

 

[PJ249]

Our rents are comparable to others in the county, maybe $25-$50 less per month and we pay for the water service, while most other landlords have started charging their tenants for water usage.
While we can afford to let our daughter move to the new home and pay no rent, she is paying close to double the rate for an apartment in her state, so can pay rent on the MH if she needs to. I would assume that a fair market value would be considered slightly more than what our mortgage loan payment would be?? In that case we should be able to claim the deductions mentioned in the posts above, since we would be reporting a rental income on the home, am I correct?

 

[davew128]

Why aren't you asking your preparer these questions?

 

[PJ249]

I haven't asked our preparer because we have just decided on purchaseing a new MH...it is not on the property, yet. This question is about 2014 tax filing if we were to let our daughter live there instead of renting the home (whether to her or someone else.) I just thought about the tax situation and didn't want to bother the accountant at the busiest time of year. They will be consulted. This will be the first Mh we have that will have a mortgage on it. The land and other homes do not.