Question

Respond to the Client's Email below in the form of email/letter response answering each question with primary sources to support the tax position and recommendation for the client. The topic is Rental Income and Rental Expense. Look for Primary sources related to Tax to answer the questions below.

3.) Brad also pays property taxes of $3,790 per year and he pays mortgage interest o f $11,000 and mortgage principle payments of $9,000. Are any of these items deductib le? 4.) My place is inexpensive because we rent from my aunt and she charges us low rent of $500 per month under the table and we give her cash, can we deduct this rent? doe s my aunt have to recognize this rent if we pay her cash? Sincerely, Tiffany and Brad

Answer 1

Q 1

Publication 530 - Property Tax - Yes and Maybe, Propoerty taxes are generally deductible in case of payment made to the local and state authorities

Publication 936 - Home Mortgage Interest - As stated in IRS "You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017" It is deductible for the second propoerty as well.

Q 2

Yes you can deduct this rent but your aunt will have to pay taxes on the deemed rent income if the rent paid by you is below the standard rent in her area.