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Tax Law (Questions About Taxes)/Renting below fair rent / taxes



In 2012 my husband and I bought a new home, but maintained ownership of our old home which we started renting to our son and his family in 2013.  In order to help them get on their feet financially, we are charging them substantially less than market rent.  The plan is to give them two years to obtain solid footing, and at that point we would either 1.)  begin charging them a fair rent  2.)  they would move out and we would then rent the home out at a fair rent or 3.) we will sell the house.  It's most likely going to be #2 or #3.  From this I have a couple of questions.  If I understand the tax law correctly, since we are doing this not-for-profit, we need to claim the rental income and we can deduct our losses up to the amount that we received in rent through itemizing.  Is that correct?  Because at this time we are not attempting to make a profit, can we claim depreciation on the house?  Would form 5213 be applicable for us as we intend to make a profit in 3 years?  And if so, what if the situation changes and we continue to rent to them at below fair value?   (Not in the plan, but not out of the realm of possibility when dealing with our son.)    Also, in regards to either renting it out at a fair rent or selling it -- can you provide any guidelines, advice, or point me to an information source to help us determine what might be best for our situation?  We are in our early 50s, own the first home with a small home equity loan which will be paid off within 4 years.  We have almost 50% equity in the home that is our residence.  Our decision to rent to them was based on emotion, and now we are trying to mitigate the consequences and make better financial decisions.  Thanks so much for your time and effort!


Thanks for your question.

In a rental not-for profit, income is reported on line 21 of the 1040.  

The expenses (up to the amount of income reported)are deductible on Schedule A in a specified order.  First, would be the "otherwise deductible" expenses. This is the mortgage interest and the property taxes on the house.  They would be deducted on the regular lines on Schedule A for the particular item.

Next, would be other expenses of the rental other than depreciation.  If any profit remains, you may then take depreciation up to the remaining profit level.  These expenses are deductible on line 23 of the 1040 and are subject to the 2% limitation.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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