No Rental Losses for Home Leased to Relative

A cardiologist and his wife claimed large losses attributable to a house that they rented to their daughter for $2,000/month. (Previously, they had rented the house to an unrelated tenant for $6,000/month.) The IRS disallowed the losses, holding that they were personal. The couple argued that they were real estate developers and that their homeowners' policy required them to keep the house occupied. The Tax Court agreed with the IRS and disallowed the loss because the daughter was a family member who didn't pay a fair rent and, thus, her personal use was attributed to the taxpayers under IRC Secs. 267(c)(4) and 280(d)(1) and (2)(a). [ Note: Rental losses can't be deducted when the owner's personal use exceeds the greater of 14 days or 10% of the days rented.] Charles and Cecilia Okonkwo, TC Memo 2015-181 (Tax Ct.).

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.