Renting to Family Members
THINK TWICE ON CALLING YOUR FAMILY TENANTS
by Jeff Pepperney, Real Property Management
If you own rental properties, you may be tempted to rent them out to family members. On the surface, it may seem like a good idea. Your family members need a place to live, and chances are, you like the idea of helping them out. But there are two key problems to consider before doing so: the potential of strained relationships, and possibly losing out on important tax benefits * . Each of these problems may result in long-term consequences for you and your investments. When you rent your properties to family, you could be putting your relationship with them on the line. It is natural to want to help people you care about, and it might seem like a benefit that you already know the person you’re renting to so well. But even if your relationship with your family members is strong, problems could arise that could risk harming it. When your family members rent from you, they may have higher expectations than other renters,
asking more of your time and attention. They may also expect you to upgrade or replace items before you are ready, give them discounts or waive screening fees. If you are unable to meet those expectations, your relationship with your family members could rapidly deteriorate. It’s also important to consider the effect that renting to family members could have on your taxes. The IRS has specific guidelines about using rental properties for personal use. These guidelines provide information about the effects of using property you own for personal reasons for more than 14 days in a year. Even if your family members pay rent, you’ll want to consult your local advisors to ensure you are charging them fair market value for the home and your rental property does not get reclassified as personal use. Unlike income properties, the IRS does not allow you to deduct all expenses for personal-use properties. If you decide to let family members stay in
your rental, even if you are charging them a minimal rent, you will want to make sure you don’t end up losing valuable tax deductions. Given the potential risks that come with renting to family, it’s an idea you’ll want to lend careful thought and consideration. In most cases, your best course of action is to keep your personal relationships and your investing business separate. One of the best ways to do so is to hire a professional property management company like Real Property Management. We can help you find quality tenants for your rental properties. In this way, we will help you keep your investment properties safe for years to come. • *Real Property Management is not a financial, tax or legal advisor. This Content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. All content is information of a general nature and does not address the circumstances of any particular individual or entity.
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