Renting apartment below fair market value - Is it considered a rental property for tax purposes?

What you're dealing with is what the IRS calls "not-for-profit" rental activity, which is different from a true rental property. When you rent below fair market value (especially to friends/family), the IRS views this as a personal arrangement rather than a business venture. Here's what this means for your taxes: The rental income (those maintenance fees your friend pays) technically should be reported as "Other Income" on Schedule 1, not on Schedule E. However, there's an exception - if your expenses (specifically mortgage interest and property taxes) exceed the rental income, you don't need to report the income at all. For your expenses, you can't claim rental losses when it's not-for-profit, but you can still deduct your mortgage interest and property taxes on Schedule A if you itemize. Since you're taking the standard deduction, you won't get any tax benefit from these expenses. The reason TurboTax continued with the interview is that the software isn't always smart enough to catch these nuanced situations. When you entered "0" for both fair rental days and personal use days, it should have flagged this as an error since every day must be categorized somehow.

After struggling with a similar situation last year, I found a super helpful tool that saved me hours of frustration - taxr.ai at https://taxr.ai - it analyzes rental property situations like yours and gives you clear guidance. I uploaded my rental documents and it immediately identified that my below-market rental to my cousin was actually "not-for-profit" rental activity. It showed me exactly how to report it correctly instead of as Schedule E rental property. The tool explained that when you rent below market value (especially to friends/family), the IRS treats it differently than commercial rentals. It helped me understand exactly which expenses were still deductible and which weren't. The best part was it explained everything in plain English instead of tax jargon.

I tried taxr.ai after seeing the recommendation here and it was incredibly helpful! I uploaded my foreign rental documents and answered a few questions about my below-market rental situation to my sister. The analysis confirmed I was handling it wrong all these years! The tool showed me that since I was renting substantially below market value to a family member, it was considered "not-for-profit" rental activity. I learned I should only be reporting the income if it exceeds my property taxes and mortgage interest (which it doesn't in my case). What was most helpful was the explanation of how foreign rental properties have special reporting considerations. The site even generated a custom explanation I could provide to my accountant. Definitely saved me from another year of incorrect filings!

After dealing with the IRS for weeks trying to get clarification on my below-market rental situation, I finally found a way to speak with an actual human at the IRS using https://claimyr.com - you should check out their demo at https://youtu.be/_kiP6q8DX5c. I was skeptical at first, but it actually worked! Instead of waiting on hold for hours, I got a call back within 20 minutes with an IRS agent on the line. They confirmed exactly what others here are saying - renting below fair market value (especially to friends/family) is generally considered "not-for-profit" rental activity. They walked me through the specific rules about when to report income and which expenses are still deductible. The agent explained that if your rental income (the maintenance fees in your case) doesn't exceed your mortgage interest and property taxes, you don't need to report that income at all.

Ok I need to publicly eat my words about Claimyr. I was completely skeptical about it working, but I gave it a try yesterday out of desperation after waiting on hold with the IRS for 2+ hours and getting disconnected TWICE. I followed the video link and signed up. Within 35 minutes (they estimated 45), I got a call connecting me directly to an IRS agent. No hold music, no automated system - just straight to a helpful person. The agent clarified my below-market rental question immediately and confirmed I don't need to report the income since it's less than my property taxes. I've been filing this incorrectly for years, and in 10 minutes, I finally got a clear answer. I genuinely didn't think this would work, but it saved me hours of frustration. If you're dealing with IRS questions that tax software can't handle clearly, definitely worth trying.

TurboTax missed this for me too last year. The key is understanding that below market value rentals (especially to friends/family) fall under IRC Section 280A(g), which is a specific provision for "not-for-profit" rentals. The reason TurboTax got confused is because you put 0 for both fair rental days AND personal use days, which can't both be true (the property exists somewhere for 365 days). For below market rentals, you should classify all days as personal use days (365) even though someone else is living there. Also, your maintenance fees aren't technically rental income - they're reimbursement of expenses. If your friend is ONLY paying maintenance fees that you'd pay anyway, and nothing extra to you, the IRS would likely view this as cost sharing rather than rental income.

I'm confused about one thing - if the apartment is outside the US, don't you have to report it on FBAR and Form 8938 regardless of whether it's rental or personal? My accountant told me all foreign properties need to be disclosed even if they don't generate income.

This is a really complex situation that highlights how confusing tax software can be with edge cases. You're absolutely right that TurboTax should have caught this - when you entered "0" for both fair rental days and personal use days, that's mathematically impossible since the property exists somewhere for 365 days. Based on what others have explained here, it sounds like you need to go back and correct your filing. You should enter 365 days for personal use (since below-market rentals to friends/family are considered personal use), which would take you out of the Schedule E rental property track entirely. The good news is that if your maintenance fees are less than your property taxes, you likely don't need to report any income at all. But you should definitely get professional help or use one of the tools mentioned here to make sure you're handling the foreign aspects correctly - there are additional considerations for foreign properties that go beyond just the rental vs. personal determination. Don't feel bad about the confusion - this is one of those areas where the tax code is genuinely unclear and even tax professionals sometimes get it wrong!