This question is specifically asking about the technical definition, regardless of how unlikely it may be for the IRS to ever find out or care.
Person A owns and lives in a condo unit. Person A's girlfriend moves in to the unit and wants to "help out" paying for things.
Where is the line (if there is one) where "helping out" would become "paying rent that has to be reported" in the eyes of the IRS?
The line would be when/where Person A attains an "accession to wealth." See IRC 61 generally.
Is the "helping out" payment required for the use or occupancy of the property? If yes, it is rental income. If not, it is not rental income.
I agree. When the roommate starts paying more than her half of the non-deducdtible costs, it starts to be rent.
So technically even paying $10 towards even a personal expense like food is reportable rental income if doing so is a requirement of living there?
(Not arguing with you, just trying to make sure I'm understanding you)
I don't think so. As someone else posted, you have to be paying more than just your fair share.
Otherwise, you're a roommate and you're splitting the expenses, rather than a tenant.
I agree. My recollection is that to the extent that a person is sharing the costs, that's not income. If you had a tenant who was a sole tenant, and they paid their own electric bill, that wouldn't be income to the owner. I don't see how it would be different if the owner was also living there.
I disagree from a tax law perspective. I know of nothing in the law (code, regs, court decisions) that carves out an exception for sharing of costs. If you own the property or you are the lease holder and you offer to let someone else use that property or occupy that property on the condition that they pay you for that use, you have rental income. It does not matter that you say "okay guys, you can live here but you have to pick up your fair share of the utilities". If they can not live there unless they pay for the utility usage, you are charging them for the use and that makes the payment rental income.
I would be more than happy to change my mind if someone can show me a regulation or court decision that carves out an exception for sharing of costs under the scenario I identified. See Treas. Reg. 1.61-8
See my reply to Stuart's post. Your scenario is totally unrealistic but there are situations where a personal expense such as food is rental income. Think of "board" in the phrase "room and board". The payment for food is rental income if you could only live there if you paid for board.
If this theory were true, everyone in the country who is splitting the rent with roommates would be committing tax fraud. Somehow, if that were the case, you'd think we'd have heard about it by now.
R's, John
I know I saw it in a tax court case or some other authoritative source, but it was years ago, and I am unable to find it now. I'm not completely comforted by the fact that, upon a google search, Turbotax agrees with me.
In that case it would be a business, and those expenses would be deductible. In a case where one person takes in a roommate, they are sharing expenses. Do you have taxable income when you pay for a meal and your companion pays you back for his portion?
Apples and oranges. The meal involved a loan, not residential rentals.
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