If I rent my second home (no personal use) to a business owned by my mother, am I at risk of not being able to take advantage of tax deductions because of the personal use rules? Does it matter if it is a pass-through entity or closely held corporation?
As long as you have no ownership interest in your mother’s business and the rent charged is fair market value, the personal use limitations should not apply to you. In addition, the type of business of the tenant, whether a pass-through entity or closely held corporation, has no tax reporting implications to you. See IRS publication 527 for additional information, including where and how to report on your federal income tax return.
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Answered by: Michael A. Gillen, CPA, is director of the tax accounting department at Duane Morris LLP in Philadelphia.