Fair Market Value of Rental Propertys

[10409000]

Hello all, I have a question. I see some clients charging a super low amount for rent for their rental properties. I recently learned that if they are not charging FMV that we should not be reporting it on a schedule E and instead just count it as "Other income" does anyone here in the community do this? Do you get any pushback from clients stating they want to write off expenses etc when they charge below fmv? Im so lost and i feel like its making my job harder as i dont know how to determine exactly what fmv is for their specific property.. i mean i have a rough idea..but how should we handle this? what if its a situation where the landlord never raises rent cause they are good tenants and the fmv is 3,000 but they only charge them 1200 etc. any feedback whether you feel its wrong or not is helpful as i would like to hear what everyone else is doing. 

[BobKamman]

If it's a family member who is paying below-FMV rent -- and it usually is -- then the client should consider swapping Schedule E for Form 709.  However, I see many cases where tenants become the favorite charity of landlords, who are otherwise parsimonious about giving money to anyone, whether charity or family.  "They keep the property up, they don't cause any problems"  -- well, isn't that what tenants are supposed to do?  But it's like the surveys that show tax preparers who have been in business for 20 years charge less than those who just started, because they don't want to raise fees for their friends. 

On the other hand, some discount can be allowed for worthy tenants, whether related or not.  I had a client who rented to his parents for 20 years, at less than what many would consider fair rental value.  But the house doubled and tripled in value during that time, and he didn't have to worry about turnover.  Remember the adage about pigs getting fat while hogs get slaughtered.  

[Skylane]

Here's a pretty good article. 

IRS Rules Regarding Below Fair Market Value Rent. | Bizfluent

[BobKamman]

Actually, it's a terrible article because it refers to "IRS rules" without citing any primary sources.  I'm trying to figure out if this PhD author is the same one whose degree is in 18th Century English Lit and had an interesting career as a musician and campus radical before becoming a Registered Investment Advisor.

https://www.psaudio.com/copper/article/dr-patrick-gleeson-the-interview/

https://exclusive.multibriefs.com/author/patrick-gleeson