rental loss to related person

As far as it goes, yes.

But you leave out a lot of relevant information. What is the purchase price? How does the grandson pay for it? Is the grandson's payment on his debt will equal the same $2,000 that the grandfather will end up not paying and just call it a wash?

If the grandson actually pays the grandfather full market value, as the owner the grandson can take all the deductions he could if he rented the place to anyone else.

But in any other situation, there are complications, such as imputed interest and deemed gifts, that could make it very complicated.

Grandson paid over $1M cash for the place. (There isn't a mortgage on the place.) The rental income is mostly imputed because the grandfather is paying all expenses that an owner would incur. (taxes are part of the monthly co-op maintenance). The loss would come from depreciation. In other words, the activity is cash neutral excluding the tax Effect of the loss. His income may be too high for the loss to be allowable under PAL rules because he is married filing separately.

Some of the possible suggestions we have thought about:

1. Getting a real estate broker experienced with rentals in the area to provide an opinion on fair market rent.

1. Setting a fixed rent.

2. declaring any difference between the rent collected and the fair market rental value as a gift from grandson to grandfather. Most likely, this would be less than the ,000 annual exclusion, but would still have the problem regarding depreciation not being allowed but still subtracting from taxable basis.

Thanks, Gary

That's better, but still potentially complicated. Getting an appraisal (formal or informal) to show there was no gift to the grandson (or to the grandfather) certainly couldn't hurt. Getting an opinion on fair rent would also be helpful.

To the extent the grandfather does maintenance, etc., instead of actually paying the grandson rent, the grandson will have taxable income nevertheless in that amount. Some of it may be deductible to him, some not.

Talking to your own tax pro about this may be best, since it involves several moving parts that could complicate things.

Good luck.

-- Stu

If he lived wih spouse anytime in the year, there's no PAL allowed when filing MFS regardless of income..

All the information provided by Stuart and Art applies if and only if the grandfather makes the coop is PRINCIPLE residence. That use is implied in the OP but I didn't see it explicitly stated.

Thanks for the clarification, Bill. Good information.

-- Stu