Landlord living in rental unit - tax implications?

Question

I own a 2 family house, and after many years of renting out one half of it (and many travails with tenants), I have moved a family member into the property rent free. I have unused depreciation in the rental part of the house because my income level does not allow me to claim it - just continue to carry it in the advent of a sale. Does allowing family to stay at the rental jeopardize my depreciation?

Answer 1

Does allowing family to stay at the rental jeopardize my depreciation?

No, accumulated depreciation that hasn't been deducted reduces your basis in the event of sale. That doesn't go anywhere.

Accumulating more may not be allowed though.

If the property is no longer rental (i.e.: personal use, your family member lives there for free), you cannot claim expenses or depreciation on it.

If you still rent it out to your family member, but not at the fair market value, then you can only claim expenses up to the rental income. I.e.: you can only depreciate up to the extent the depreciation (after all the expenses) not being over the income generated. You cannot generate losses in such case, even if disallowed.

If you rent to your family member at the market rate (make sure it is properly documented), then the family relationship really doesn't matter. You continue accumulating expenses as usual.

Answer 2

A tenant is a tenant regardless of your relationship to them, and as long as the property is classified as an investment property, you can claim depreciation and regular business losses just as you would on any property with any tenant.