What are the tax rules for renting an apartment in your building to a family member?

Each apartment is its own dwelling unit

Publication 527 says a dwelling unit includes a house, apartment, condominium and similar property with basic living accommodations such as sleeping space, a toilet and cooking facilities (IRS Publication 527). In an apartment building, the personal use rules apply to the one unit your relative lives in, not to the whole building. The other units stay ordinary rentals.

Who counts as family

Publication 527 limits family to your spouse, siblings, half siblings, ancestors (parents, grandparents and so on) and lineal descendants (children, grandchildren and so on). The same rule applies to family of any other person who owns an interest in the property, which matters when partners or co-owners share a building.

A day the unit is used by any of those people is a day of personal use, unless the family member uses the unit as their main home and pays a fair rental price. Separately, any day the unit is rented to anyone at less than a fair rental price is also personal use, whether or not they are related to you.

The fair rental price test

Publication 527 says a fair rental price is generally the rent a person who is not related to you would be willing to pay, and that rent is not fair if it is substantially less than rents for similar properties in your area. It gives five questions for comparing:

1. Is it used for the same purpose?
2. Is it about the same size?
3. Is it in about the same condition?
4. Does it have similar furnishings?
5. Is it in a similar location?

If any answer is no, the properties probably are not similar. In your own building, the easiest comparison is the rent you charge unrelated tenants for the same floor plan in the same condition.

What changes when the rent is too low

Publication 527 says you use a dwelling unit as a home if your personal use days exceed the greater of 14 days or 10% of the days it is rented to others at a fair rental price. A relative living there all year below a fair price easily passes that. When a unit is used as a home and also rented, you divide its expenses between rental and personal use, the personal share is not deductible as a rental expense, and if the unit shows a net loss, its deductions are limited using Worksheet 5-1. Schedule E line 2 asks for fair rental days and personal use days for each property.

Example a made-up 10 unit building rents its two-bedroom units for $1,500 a month. The owner rents one to their adult son, as his main home, for $900. Over a year the gap is $600 x 12 = $7,200 of rent the building does not collect. Because $900 is substantially less than the $1,500 the same unit rents for, the son's 365 days are personal use days, so that unit's share of expenses, depreciation included, is split under the personal use rules instead of being deducted in full. Charging the son $1,500 would keep it an ordinary rental unit.

The exact reporting depends on how the property is owned and the rest of your return, so have your tax preparer work it out before you set the rent.

Records that support a family rental

• A written lease at the same rent and terms as unrelated tenants, signed like any other.
• The rents of comparable units in your building on the date the lease starts.
• Rent paid by bank transfer every month, on time, matching the lease.
• Late fees and renewals handled the same way as for everyone else.

Keeping a family lease at arm's length in DoorKeeping

DoorKeeping treats every lease the same: an e-signed lease, a renewal offer, an exact monthly amount with its own cents and memo code, and bank feed matching that shows each payment against that unit. That gives you a clean record that a relative paid the same rent, on the same terms, as the unit next door. DoorKeeping does not decide fair rental price or give tax advice.

Sources

1. IRS, Publication 527, Residential Rental Property, read Oct 30, 2026

Questions

Can I rent an apartment to my child and still deduct expenses?

Yes, if it is their main home and they pay a fair rental price. At substantially less than market rent, the days count as personal use and the unit's expenses must be split.

Are in-laws or cousins family under the IRS rental rules?

Publication 527 defines family as your spouse, siblings, half siblings, ancestors and lineal descendants, so in-laws and cousins are not on that list. Below-market rent to anyone is still personal use.

What is a fair rental price for a relative?

Generally what an unrelated person would pay for a similar unit. In your own building, use the rent for the same floor plan in the same condition.