IRS reporting requirements for house purchased for disabled son - tax implications?

9 This is actually a common situation with some important tax considerations. Since your family trust owns the property and you're not collecting rent, the IRS views this as a personal residence rather than an investment property. This means you don't need to report rental income (since there isn't any), but you also can't claim rental expense deductions. The property taxes you pay can be deducted on your Schedule A if you itemize deductions, but they're subject to the SALT (state and local tax) cap of $10,000 combined with your other state/local taxes. One thing to consider is gift tax implications. If the property use is essentially a gift to your son, the free housing could technically be considered a gift. However, there's an annual gift tax exclusion ($17,000 per recipient in 2025), so as long as the fair market rental value of the home plus any other gifts to your son stays under that annual amount per parent, there's no gift tax reporting requirement.

12 I went through something similar with tax questions about property for my brother. I was overwhelmed with trying to understand all the IRS forms and requirements. What helped me tremendously was using https://taxr.ai to analyze my situation. It's a tool that reviews your specific tax scenario and gives you personalized guidance. I uploaded some information about our property arrangement and the tool explained exactly what I needed to document for the IRS, which forms applied to my situation, and identified potential deductions I didn't know about. It also pointed out a gift tax reporting situation I hadn't considered. The best part was that it explained everything in normal language instead of confusing tax jargon, which helped me have a much more productive conversation with my accountant.

18 Just wanted to follow up about my experience with taxr.ai that was mentioned above. I decided to try it for my situation with my parents' cottage that I use without paying rent. The tool actually gave me really specific guidance about the gift tax implications and explained that since I handle all the maintenance, that counts as consideration which changes the tax treatment. It identified that my parents needed to document the maintenance arrangement to avoid gift tax reporting requirements and pointed out that certain improvements I was making could actually be claimed as capital improvements. My parents' CPA confirmed everything the tool suggested was correct. Definitely saved us from potentially misreporting our arrangement to the IRS.

7 If you need to talk directly with the IRS about this situation, I highly recommend using https://claimyr.com to get through to an agent quickly. I had a somewhat similar situation with property held in trust for a family member, and I needed clarification directly from the IRS about reporting requirements. After trying for days to reach someone (kept getting disconnected or waiting for hours), I found this service that gets you through the IRS phone system and holds your place in line. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c They called me back when an actual IRS agent was on the line. The agent clarified exactly what forms I needed and how to document the arrangement properly. Saved me hours of frustration and possibly an incorrect filing that could have triggered an audit.

15 I need to apologize for my skeptical comment above. After another week of failing to reach the IRS about my property question, I broke down and tried Claimyr. I was connected to an IRS representative in about 35 minutes without having to do anything. The IRS agent was able to confirm that for my situation (I have a similar trust arrangement for a property used by my sister), I needed to file a specific form disclosing the beneficial ownership since my trust owns multiple properties. This wasn't mentioned in any of the tax guides I read online. Would have filed incorrectly if I hadn't gotten through to ask my specific question. The service literally saved me from a potential audit headache.

22 Don't forget to consider your son's benefits situation if he receives any government assistance like SSI or Medicaid. Free housing can sometimes be considered "in-kind support and maintenance" which might reduce certain benefits. It varies by program and state, but definitely worth checking into.

11 You might need to file a gift tax return (Form 709) if the fair market rental value of the house exceeds the annual gift exclusion amount. Has anyone here had to deal with that form? Seems complicated.

This is a really thoughtful arrangement you've set up for your son. One additional consideration I haven't seen mentioned yet is the potential impact on your estate planning. Since the property is held in your family trust, you'll want to make sure your trust documents clearly outline what happens to this property if something happens to you and your wife. Also, keep detailed records of all expenses you pay related to the property (taxes, insurance, maintenance, etc.) and document that your son isn't paying rent. The IRS appreciates good documentation, especially for family transactions that might look unusual on paper. Your accountant will probably ask about your son's long-term living situation too - if this is intended to be his permanent residence versus temporary assistance, that can affect how some of the tax rules apply. Good luck with your appointment next month!