Landlord living in rental unit - tax implications?
Does allowing family to stay at the rental jeopardize my depreciation?  No, accumulated depreciation that hasn't been deducted reduces your basis in the event of sale. That doesn't go anywhere. Accumulating more may not be allowed though. If the property is no longer rental (i.e.: personal use, your family member lives there for free), you cannot claim expenses or depreciation on it. If you still rent it out to your family member, but not at the fair market value, then you can only claim expenses up to the rental income. I.e.: you can only depreciate up to the extent the depreciation (after all the expenses) not being over the income generated. You cannot generate losses in such case, even if disallowed. If you rent to your family member at the market rate (make sure it is properly documented), then the family relationship really doesn't matter. You continue accumulating expenses as usual. A tenant is a tenant regardless of your relationship to them, and as long as the property is classified as an investment property, you can claim depreciation and regular business losses just as you would on any property with any tenant.
One of my previous landlords did the same thing. He was politically conservative and outspoken enough to admonish his renters that if the Democrat candidate won, taxes would likely go up, and he would pass the additional cost from his higher taxes onto them in the form of rent increases. "If you pay her rent, how do you differ from a tenant in the eyes of the law? I ask this to show that you are in a business relationship first and foremost. If you don't want to file jointly, there is nothing compelling about your situation to force it. (Grant you, in most countries, there is a benefit to filing jointly) but here, I would argue it would be difficult to make the case. There are, to the best of my knowledge, no laws barring opposite sex landlord-tenant rental situations.  Furthermore, there are no laws barring romantic relationships amongst landlords and tenants.  Indeed, you would need to prove your relationship in some fashion for it to even be considered. In establishing a date of separation from my soon-to-be-ex-wife, for example, I merely needed to prove that we were not ""presenting ourselves as husband and wife.""  Once I showed that we didn't sit together at church and that she was attending parties I wasn't, that was sufficient. Proving you are in a relationship is actually a lot harder than proving you're not." Very simple. If it wasn't rented, it's deductible as a schedule A home mortgage interest. If it was rented, you go into Schedule E land, still a deduction along with any/every expense incurred. "DirectGov has a good overview here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814 and answers to your specific questions here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435 In short, you do need to declare the rental income on your tax return and will need to pay tax on it (and note that only the mortgage interest (not the full repayment) is deductible as an ""allowable expense"", see the full list of what is deductible here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027 )." does your sister agree to sell her share of the house?  Will you live in the house or rent it out?  In Australia if you rent out the house you can claim on expenses such as interest deductions, advertising cost, advertising to get tenants in, maintenance cost, water & sewerage supply charge, Land tax, stamp duty, council rates.  A percentage of these expenses can be used to reduce your gross income and therefore reduces your tax liability (called negative gearing).  Not sure how other countries handle investment properties. If you plan to live in the house and not rent it out and you have spare cash to buy outright then do so.  You don't want to be in debt to the bank "The value of getting into the landlord business -- or any other business -- depends on circumstances at the time. How much will it cost you to buy the property? How much can you reasonably expect to collect in rent? How easy or difficult is it to find a tenant? Etc. I owned a rental property for about ten years and I lost a bundle of money on it. Things people often don't consider when calculating likely rental income are: There will be times when you have no tenant. Someone moves out and you don't always find a new tenant right away. Maintenance. There's always something that the tenant expects you to fix. Tenants aren't likely to take as good a care of the property as someone who owned it would. And while a homeowner might fix little things himself, like a broken light switch or doorknob, the tenant expects the landlord to fix such things. If you live nearby and have the time and ability to do minor maintenance, this may be no big deal. If you have to call a professional, this can get very expensive very quickly. Like for example, I once had a tenant complain that the water heater wasn't working. I called a plumber. He found that the knob on the water heater was set to ""low"". So he turned it up. He charged me, I think it was $200. I can't really complain about the charge. He had to drive to the property, figure out that that was all the problem was, turn the knob, and then verify that that really solved the problem. Tenants don't always pay the rent on time, or at all. I had several tenants who apparently saw the rent as something optional, to be paid if they had money left over that they couldn't think of anything better to do with. You may get bad tenants who destroy the place. I had one tenant who did $10,000 worth of damage. That include six inches deep of trash all over the house that had to be cleared out, rotting food all over, excrement smeared on walls, holes in the walls, and many things broken. I thought it was disgusting just to have to go in to clean it up, I can't imagine living like that, but whatever. Depending on the laws in your area, it may be very difficult to kick out a bad tenant. In my case, I had to evict two tenants, and it took about three months each time to go through the legal process. On the slip side, the big advantage to owning real estate is that once you pay it off, you own it and can continue to collect rent. And as most currencies in the world are subject to inflation, the rent you can charge will normally go up while your mortgage payments are constant." Your question is best asked of a tax expert, not random people on the internet. Such an expert will help you ask the right questions.  For example you did not point out the country or state in which you live.  That matters.   First point is that you will not pay tax on 60K, its expensive to transact real estate, so your net proceeds will be closer to 40K.  Also you can probably the deduct the costs of improvements. You implied that you really like this rental property.  If that is the case, why would you sell...ever?  This home could be a central part of your financial independence plan.  So keep it until you die.  IIRC when it passes to your heirs, a new cost basis is formed thereby not passing the tax burden onto them. (Assuming the property is located in the US.) I'm not an attorney, nor am I a licensed tax adviser. I suggest you talk to these two types of professionals. From my limited knowledge, without proper documentation/organization, I can't see how the IRS/State will not consider this as a rent payment. The mortgage responsibility is of the person signing the mortgage contract, and you're under no obligation to pay that person anything. Had you not lived at the property, you might argue that it was a gift (although I'm not sure if it would stand), but since you do live in the property - it is quite obviously a rent payment. Putting your name on the deed may mitigate this slightly but I'm not sure how much - since you're still not obligated to pay the mortgage. However this is probably moot since it is unlikely for a bank to give a mortgage on a property to person A when it is also owned by a person B, without that person B being side to the mortgage contract. As DJClayworth said, be very careful with this one!   The property is a residence, not a business location.  Given that, it is almost a certainty that the IRS is not going to let you claim 100% of the expenses for the home as a business expense, even if nobody's actually living there.   You may get away with doing this for a period of time and not run into zoning or other issues such as those DJ mentioned, but it's like begging for trouble.  You run the very real risk of being audited if you try to do what you're proposing, and rest assured, whatever you saved in taxes will disappear like smoke in the wind under an audit. That being said, there's no reason you can't call a tax service and ask a simple question, because in answering it they're going to hope to gain your business.  It'd be well worth the phone call before you land yourself in any hot water with the IRS.  I can tell you that I'd rather have a double root canal with no anesthetic than go through an audit, even when I didn't do anything wrong! (grin) Good luck! You're aware there's no such thing as a cheap house in Jersey right? Rental values are listed in price per DAY to make them look less scary.   Also, no, you couldn't. You pay tax in the country you are resident in and the States don't equate property ownership to residency; neither does HMRC.   Interesting side note, in Jersey's neighbour Guernsey you can own a house but not legally be allowed to live in it due to the dual property market. @Pete B.'s answer is good, but there's an important note to consider for tax purposes.  It's too large for a comment, so I'm adding it as an answer. And that is: you cannot claim the property as a rental property under certain conditions.  This affects things like claiming mortgage interest (which you don't have), and depreciation in value (which a rental is allowed). See IRS topic 415 for details, but I've included an important excerpt below with emphasis added: If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:  ...   A day of personal use of a dwelling unit is any day that it's used by: Talk to a tax accountant to better understand the ramifications of this, but it's worth noting that you can't just rent it to her for a paltry sum and be able to take tax advantages from this arrangement. GET A LAWYER. Doing business with relatives is business first, and some effort spent in setting things up and nailing down exactly what the financial relationships and obligations are beforehand can save a lot of agony and animosity later. Assuming it's a legal rental, you may be able to deduct business costs spent on maintaining the rental unit, but of course you will have to declare the rent as income. If it's just a bedroom suite, rather than a full legal apartment, I don't think you can claim it as rental. (Note that whether you decide to share cooking and such is a separate question; apartment in most areas requires its own kitchen and bathroom.) As Joe pointed out, the actual purchase also sounds like it's going to involve a large gift, which has its own tax implications. Either that, or they retain ownership of their share and you get to deal with that if you or they decide to sell.  Again: GET A LAWYER. And a tax accountant or tax lawyer to advise you on those implications. This is not someplace where the average wisdom of the Internet should be relied upon except for generalities; local laws and contract details matter. http://www.irs.gov/publications/p936/ar02.html#en_US_2010_publink1000229891 If you still own it, you get to deduct all of it. In my taxes I did online with TaxAct, it asked if I lived there or not and it just mattered which form it filed for me.  With having tenants it was a 'business' form and I assume it would be a standard schedule A for personal.  Either way the deductions are still mine to take. You will need to look at the 27.5 year depreciation table from the IRS. It tells you how you will be able to write off the first year. It depends on which month you had the unit ready to rent. Note that that it might be a different month from when you moved, or when the first tenant moved in. Your list is pretty good. You can also claim some travel expenses or mileage related to the unit. Also keep track of any other expenses such as switching the water bill to the new renter, or postage.  If you use Turbo tax, not the least expensive version, it can be a big help to get started and to remember how much to depreciate each year. The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income. Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed. Your rent is not tax deductible because this expense is not used to derive your income. If however you were working from your home, example - you had a home based business, and you dedicated a part of your home for your work, say an office, then part of your rent may then become tax deductible.