DEAR BOB: For several years I have owned a townhouse as an investment. About a year ago, my tenant moved out. When I foolishly mentioned this to my brother, age 34, he asked if he could move in. I stupidly agreed. Now I realize that was a major mistake. We didn’t discuss the rent or my expenses for the mortgage, insurance, homeowner association dues, and repairs. My brother isn’t mentally retarded, as he graduated from high school. But I think he’s just very lazy. He passed the post office exam to become a mail carrier or a window clerk. But when he was offered a job, he turned it down because the postal work would be “too boring.” Instead, he works as a part-time “bag boy” at a supermarket. He’s very handsome and charming so I suspect he earns excellent cash tips for helping the rich little old ladies to their cars with their groceries. But he says he can only afford to pay me $300 per month rent. However, my monthly total expenses are more than $1,100. When I had my 2003 income tax returns prepared, the tax preparer said I couldn’t claim any tax deduction losses exceeding my rent income. Is this correct? – Diana D.
DEAR DIANA: Not exactly. You have two strikes against you. The first strike is the $300 per month rent you receive is far below your $1,100 actual expense and probably way beneath the market rent for the townhouse. The second strike is you are renting to a relative.
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Therefore, your tax preparer is correct that you are not entitled to any tax loss deductions for the rental townhouse. However, your property taxes and mortgage interest are always fully tax deductible, even if they exceed the rental income paid by your brother.
P.S. It sounds like your brother is super-sharp. He knows how to “con” his sister into renting him a nice townhouse at a below-market rent. Maybe it’s time to insist he pay market rent. It’s called “tough love.”
HOME INSPECTOR SAYS AVOID RECOMMENDED INSPECTORS
DEAR BOB: I’m an avid reader of your articles and especially enjoy the home inspection questions. Having been a home inspector for many years, I am particularly grateful for the way you recommend home inspection as a vital part of a house purchase. You are 100 percent correct to tell home buyers to reject inspectors recommended by a real estate agent unless that agent provides a list of at least five local professional inspectors. The big problem is realty agents recommend the “easy inspectors” because they don’t want the inspector to discover any serious undisclosed defects. I am a member of both ASHI (American Society of Home Inspectors), which you often recommend, and also our state association of inspectors. Our big problem is the most competent inspectors get the fewest referrals from the local realty agents. Do you have any suggestions how to handle our relationships with realty agents who can refer us lots of business but who won’t do so if we discover any serious defects? – Dirk H.
DEAR DIRK: The conflict situation that you describe has no easy remedy. You’re doing your professional inspection job as best you can, but the referring realty agents don’t want your inspections to kill their home sales.
Having dealt with many professional home inspectors, mostly very good but a few totally incompetent, I’m glad you are a member of ASHI, which has the highest home-inspection standards.
Although the home buyer is paying your inspection fee, try not to be a “nit picker” over minor circumstances you discover. Just point out the possible problem without making a “big deal” of it.
I suggest you invite the real estate agents to accompany you on your inspections so they can see for themselves the thorough job you do. Turn on your best charm so you will get more referrals, even if you occasionally discover undisclosed home defects.
The new Robert Bruss special report, “Secrets of Buying Your Home or Investment Property for Nothing Down,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.
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