Can I charge no rent for my parents in my rental property and reduce my income tax?

[variable]

As title, is it technically correct?

[eri]

i guess you mean

"and still claim the interest payments as a tax deduction"

frankly i don't know

but if you were audited

charging a very low rental

would probably look a whole lot better than no rental at all

[drelly]

Yes you can. It will work really well until you get audited and penalised for back taxes, penalties and interest. So... probably best not to. You could charge them a lower-end market rent though.

[variable]

OK, let's say $100/week compare to market rate maybe $400, at the end of the day that's my rental house and my parents right? Need to look after them. What do you reckon?
What if they cannot afford to pay $100 at all, what would happen?

[drelly]

OK, let's say $100/week compare to market rate maybe $400, at the end of the day that's my rental house and my parents right? Need to look after them. What do you reckon?
What if they cannot afford to pay $100 at all, what would happen?

Eri and I are probably not being clear enough. The test is basically whether it's a genuine business or a tax dodge. If you're charging a quarter of market rent, it's obviously not a genuine business. So in the event of an audit, the IRD would smash you. You can look after them without trying to save tax. What they can afford is irrelevant when it comes to your tax return.

[variable]

I see, that makes sense, thanks alot guys.

[variable]

Sorry one more question, what if I make the rent the same as mortgage interest? Speaking of ethical point of view, I buy the house for them to live in, and I don't want to make a profit out of them.

It's not intentionally to set up that way to avoid tax, it's just being a good son. Does it sound more fair?

[Bob Kane]

Sounds fair but that doesn't wash with IRD.
Charge market rents or risk being done over by a very experienced auditor.
Or don't claim expenses (interest) on the rental.
And no - don't try to think up some more fiddles around the wording to make the deductions plausible.

[revdev]

drelly's post is a good one and sums it up well.

Can I charge no rent for my parents in my rental property and reduce my income tax

If you charge no rent then it can hardly be classed as a rental property can it?

[artemis]

Suggest read up the IRD booklet Rental Income. There is a section called 'If the property is rented out at less than market value'.

[Rosco]

Hi Variable,

Rather than trying to get a tax dodge, I would be thinking how you could minimise they costs. Maybe by buying a home and income, so that the other tenant pays most of the costs.

Or a cheaper home that your parents can afford the majority of. Or a unit attached to your home.

Ross

[variable]

Thanks guys, very informative.

[elguapo]

Maybe by buying a home and income, so that the other tenant pays most of the costs.

This is what I've done. The flat effectively produces more than enough income to cover all the costs of the house.

[Maccachic]

Find it funny people want to reduce income tax what they seem to forget is you have to spend $1 to get maybe 30c back.

[artemis]

Find it funny people want to reduce income tax what they seem to forget is you have to spend $1 to get maybe 30c back.

Too true, but if you have to spend the $1 anyway .....