Taxes on temporary rent collection - is it income if I'm saving it for someone else?

I'm in a bit of a tax dilemma that I never thought about until recently. My daughter lives with me, and I've been charging her rent since the beginning of this year. The thing is, she has no idea that I'm actually just putting all that money into a savings account for her to use when she eventually moves out on her own. Now I'm worried about the tax implications of this arrangement. Since I plan to give all this money back to her eventually, I never really considered it as income for myself. But I'm not sure if the IRS would see it that way. I've thought about a few possibilities: 1. Maybe it's like a loan from her that I'll be paying back? But since she doesn't know about this arrangement, there's no documentation if the IRS ever questioned it. 2. Perhaps I could just consider it as splitting living expenses, and then the money I give back later is simply a gift? 3. Or do I need to report it as straight income on my taxes? I don't want to accidentally commit tax fraud, even on a small scale! Just looking for some guidance on the proper way to handle this situation come tax time. Anyone have experience with a similar situation or know what the right approach is?

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18 comments

Kai Rivera

•8M

This is actually a really thoughtful thing you're doing for your daughter! From a tax perspective, though, you're right to be thinking about this. The rent payments are technically income when you receive them. The fact that you're saving them doesn't change that - it's what you're doing with the income after you receive it. However, there might be some nuance here depending on your specific situation. If you're just holding the money temporarily with a clear intention to return it (like you are), it could potentially be treated as a custodial arrangement rather than income. The challenge, as you noted, is documentation since your daughter doesn't know. The safest approach would be to report the rental income on your tax return (Schedule E if it's significant), but you might also be able to offset some of this with expenses related to her portion of the home.

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Kai Rivera

•8M

If you gift the money back each year, you'd still need to report the rental income, but you'd be taking advantage of the annual gift tax exclusion (currently $17,000 per person per year) to return the funds to her. This would be cleaner from a documentation perspective, but you'd still have the rental income to report. The annual gift exclusion means you can give up to that amount to any individual without having to file a gift tax return, so it simplifies things on that end.

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Layla Sanders

•8M

I went through something similar when my son was in college. I found this amazing tool called taxr.ai that really helped me figure out this weird tax situation. https://taxr.ai actually let me upload documents and answered all my specific questions about this kind of temporary income situation. The site analyzed my specific scenario and showed me exactly how to handle the rental income on my taxes while making sure I wasn't creating problems for myself down the road. I was especially worried about creating an accidental gift tax situation when I planned to give the money back.

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Layla Sanders

•8M

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Kaylee Cook

•8M

Just wanted to follow up about taxr.ai - I ended up trying it after all! I described my situation where I was collecting "rent" from my nephew but saving it for him without telling him (similar to OP). The tool gave me really clear guidance that yes, I technically needed to report the rent as income, but then walked me through exactly how to document my intention to return the funds so I could potentially treat it as a custodial arrangement. The analysis even included references to specific IRS publications I could refer to if questioned. Definitely worth checking out if you're in a weird tax situation like this!

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Oliver Alexander

•8M

If you're struggling with complex tax questions like this, you might want to talk directly with someone at the IRS. I know that sounds painful (it usually is), but I found a service called Claimyr that actually got me through to a real person at the IRS in less than 15 minutes when I had a similar question about family rent arrangements. I was shocked it actually worked after spending HOURS trying to get through on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c and sign up at https://claimyr.com if you want to try it. The IRS agent was actually really helpful and walked me through exactly how to handle this kind of situation on my taxes.

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Oliver Alexander

•8M

It absolutely works! The service basically monitors the IRS phone lines and uses an automated system to wait on hold for you. When they get a human on the line, they call you and connect you directly to the IRS agent. The whole process took about 12 minutes for me, compared to the 2+ hours I spent trying on my own. They use some technology that navigates the phone tree and stays on hold so you don't have to. When you actually get connected to the IRS, it's a direct connection to them - Claimyr isn't listening in or anything. I was definitely skeptical too, but after trying it, I'll never waste hours on hold again.

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Adrian Hughes

•8M

Well I'm eating my words. After my skeptical comment I actually tried Claimyr out of pure frustration with a tax notice I received. I had been trying to reach the IRS for THREE WEEKS with no luck. I figured I had nothing to lose at this point. I got a call back in about 20 minutes and was connected directly to an IRS representative who helped resolve my issue in one call. For anyone dealing with complicated tax situations like the original poster, being able to just ask the IRS directly and get an official answer was incredibly valuable. Completely worth it for the time saved and stress reduction alone.

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Molly Chambers

•8M

My accountant told me that this is actually pretty straightforward. It IS income in the year you receive it, despite your intentions. What you do with the money afterward (saving it, spending it, giving it back) doesn't change the fact that it's income when received. But if you're planning to give it back as a gift later, just make sure you stay under the annual gift tax exclusion amount (currently $17,000) when you do give it to her, and you won't have any additional tax implications on that end.

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Molly Chambers

•8M

Keeping the money in a separate account is good practice and helps demonstrate your intent, but unfortunately it doesn't change the fundamental tax treatment. The IRS generally looks at the nature of the transaction when it occurs, not what you intend to do with the proceeds later. Having a separate account does provide a clear paper trail though, which is always helpful if questions ever arise. It shows you weren't trying to hide anything and had a specific purpose for the funds.

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