ALBUQUERQUE, N.M. — Q: I am considering buying a house to rent to my daughter. She has two dogs and a cat and needs a property with a yard and currently she lives in an apartment where she has to pay extra every month for the pets. I have owned rental houses in the past so I have no concerns about being a landlord or finding a property that would be a good investment. My question is whether there are any special tax rules that apply to how I would file this on my tax return.
A: If you have had rentals in the past you know that rental income and all associated expenses are reported on IRS Schedule E. Any net income carries forward to the first page of the tax return. Any losses might be limited, generally depending on your income.
That is what happens to a “normal” rental, which is one rented to an unrelated tenant. The same reporting generally applies if the tenant is your daughter with one key potential difference.
The tax law has special reporting rules for property that is held for rental as well as for personal use. These rules are commonly called the “vacation home” rules. Two special reporting issues arise for vacation homes.