rbynaker
Level 13
The related party rules are negated if it's a fair rental amount and the related party uses the property as their principal residence.  So either way seems like amending 2017 is probably in order.  See 280A(d)(3):

https://www.law.cornell.edu/uscode/text/26/280A#d_3

"(3) Rental to family member, etc., for use as principal residence
(A) In general
A taxpayer shall not be treated as using a dwelling unit for personal purposes by reason of a rental arrangement for any period if for such period such dwelling unit is rented, at a fair rental, to any person for use as such person’s principal residence."

The hinge really is fair rental.  Don't try to figure this out yourself, get a third party (realtor) to run some comps.  This gives you the basis for a tax return position, one way or the other.  I'm comfortable with a rental number that's 10% lower than the comp rate.  It's easy to argue that rental to a relative comes with a lower risk and justifiably a lower rent.  In the 10 - 20% discount range we have a conversation about why, and document things, but it's not out of the question.  Beyond 20% discount IMO is a hard sell.

Rick
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