Elderly Mother and Sharing Household Expenses

[portmaster1000]

I take care of my elderly mother (who lives with me) whose health is declining. She is close to qualifying for Medicaid but still has some savings. An Elder law lawyer, suggested that she could pay me rent and that wouldn't disqualify her from Medicaid once her saving were to the proper level.

If we create a rental agreement will this money be seen as taxable income for me?

Is there another type of agreement that would be allowed under Medicaid but avoid the tax hassle?

thanx
Mark - North Carolina

[Bubba Jimmy]

The rent would be taxable income only to the extent it exceeded allowable expenses. Also, if renting to a family member you have to be careful to rent for the fair market value or it is not rental activity, but rather "other income" against which you will be limited on what expenses you can deduct. Since you've gotten the advice of a lawyer on the Medicaid issue, I won't address that since it is not a tax issue.

[portmaster1000]

Totally new to the tax rules of renting. What are some "allowable expenses"?

thanx
Mark

[llworking]

Totally new to the tax rules of renting. What are some "allowable expenses"?

thanx
Mark

Example....

Fair market value of a room and kitchen and bathroom privaledges in your area is 500.00 a month. The space involved is 25% of your home's square footage.

Allowable expenses would be 25% of your mortgage interest and property taxes (but that 25% would also be removed from your Schedule A, so it could be a wash)

25% of annual utilities costs would be an allowable expense.

25% of ordinary repairs would be an allowable expense.

The home could also be depreciated based on 25%...which is a tricky and murky subject and could be one of those reasons why the plan might not be a good one.

In any case, its possible that renting to your mother would ultimately have little impact on your tax return..at least until you get to the point where you want to sell the home, and therefore end up having to recapture depreciation.