Losses calculating for a rental to a related party
The following situations regarding renting to a related party can affect the tax return differently.
- Rental at a fair value to a related party using the property as a residence.Under IRC Sec. 280A (d)(3), if a taxpayer is renting property to a family member at a fair value price (fair market value), any loss incurred is deductible by the taxpayer, subject to the normal hobby loss, at-risk, and passive activity rules.
- Rental at a less-than-fair value to a related party.If the property is rented at less than a fair price, the rental house is considered a personal residence. The days rented would be counted as days the property was used personally.
UltraTax CS can correctly calculate the return in both cases. Case 1 needs no special input. Case 2 needs entry on the
Rent-3
screen, if the property has some fair rental days.
