Renting A Room To A Relative: Setting A Price, Tax Issues
My Money Blog:
We are considering renting a room to one of our siblings temporarily. She’s moving out here for a new job, and since we live in an pricey area living with us will offer her a way to save up some money. On our side, we are two people with four bedrooms, so we have plenty of room right now.
Of course, horror stories abound when renting to family members. I don’t know what to say about that. I don’t foresee it being a problem as we are pretty close, and we are all responsible professional adults, but I’m sure everybody else says that as well. Being that we recently rented a unit from a another family member successfully, I also feel good being able to “pay it forward”.
The Plan
We would collect “rent”. The idea is that she would pay 1/3rd of all utilities (gas, electric, water, garbage, cable, internet) plus some buffer for other miscellaneous household maintenance items. This obviously will be much less that what it would cost to share an apartment on the open market, let alone a studio. So she’s paying her way, but we aren’t making much profit if any, ideally preventing any guilt or resentment on either side.
The Problem: Fair Rental Price
But then I did some research about the potential tax implications. Is rent always taxable income, even if from a relative sharing a home? From what I can tell, the IRS says yes. (Someone please correct me if I’m wrong.)
However,…
An undergraduate friend recently shared his financial woes with me. He’s about $8 thousand in credit card debt and has fallen behind on his payments. His parents have suggested that he take out a student loan and use it to pay off the debt over a longer period of time at a lower interest rate.
The economic stimulus checks are coming! Before depositing your tax rebate at the bank, it might be a good idea to see what retailers will offer you for it. While I don’t necessarily like the idea of treating this extra money as different from any other money (a dollar is a dollar), you might as well take advantage of the promotions if it doesn’t change your intended spending patterns. Although some of these require an economic stimulus check, others work with any tax refund check.