Rental Income

[TaxTackler]

Client has an autistic adult son who collected $11K social security.  Son paid parents $5,000 rent for the year 2019.  Is this rental income?

[Camp1040]

If it is truly a rental arrangement and not just some shared expenses and chipping in for groceries, then yes .

[hillsboro15269]

There's this special deal called "renting for less than FMV." I've seen it more for businesses renting to non-profits, although it also happens when family members rent to family members.

I haven't done one in Pro Series yet, but I'm guessing it's pretty straight-forward, once you figure out what you're doing.

Check out IRS Pub. 527 for more info. Happy Taxing 🙂 

[BobKamman]

Is it Social Security, or SSI?  He may have to spend down what he receives, in order to continue payments.  Non-FMV rent used to be reported as miscellaneous income.  It still is.  Deductions attributable to it used to be allowed on Schedule A.  Now, they're not.  

Maybe he could share the household food and utility costs, instead of calling it rent.  

[Camp1040]

I think the question is: Do the parents have to claim the income? Even if it were below FMV  rental.

I don't believe the source of the income is in question, maybe the OP could provide more info.

[TaxTackler]

The son had been living in an adult community but it didn't work out. Thus after a few years, he returned to his parents house. He pays about $400 month for his room and board.  Not excessive, it's not the whole house..

[BobKamman]

The reason the source of the income is important is that if the son is claiming payment of rent, the parents should be reporting its receipt.  If the son is receiving SSI and he's receiving in-kind income, in the form of free room and board, he may be disqualified for those and other benefits.  On the other hand, if it's Social Security, the parents may be "representative payees" and required to account to Social Security for where the money has gone.  If they tell Social Security it went for rent, they may be asked to prove it from their own financial records.  

[Camp1040]

How and why would the son claim payment of rent?

[BobKamman · Accepted solution]

If the son is receiving SSI, he has to show he remains eligible.  They know he received $11,000.  Unless he spent it, his assets are too high.  He has to show how it was spent.  Also, if he is receiving income "in kind" -- free room and board -- that may disqualify him.   

If the son is receiving Social Security and one of his parents is the "representative payee," as I explained earlier, they have to show what they did with his money.  If they claim he paid rent, they might be asked to show they reported the income.  

Tax preparers should know enough about helping poor people, even if they can't pay fees, in order to avoid giving bad advice to the rich relatives of poor people.  

[Camp1040]

Good info. it makes the point very clearly that the parents should claim the rent received as income.

[hillsboro15269]

What's the going rate for room and board in that area?

And yes, the parents really should be claiming that as income.

BobKamman is spot-on. We should all be aware of tax consequences for all taxpayers, even ones who may not be able to afford our services.

[Camp1040]

I thought the question was, is it rental income or not?

How did the post evolve into an editorial?