Staying with friends, what does this mean for taxes?

[Mr. Green]

I have a two part question. We've been staying with some friends in North Carolina since last November. We come and go as we please and there is no formal rental agreement or anything like that. Our residency status is also a tad weird. My wife works remotely for a company in Maryland, and we use our friends' address as her home address because they won't let her work remotely is she lives within driving distance of the office. However, she has to work at the office in MD every 4th or 5th week, and we're going to be traveling quite a bit this year so there's a possibility that we won't meet the residency requirements of any state at the end of the year. Our licenses and vehicles are still based in MD because the arrangement with our friends is impromptu and it's just as viable that we could say my mom's house in MD is home, since that's where we stay every time we're in MD.

To my questions. If our friends allow us to stay with them without charging us rent, are they technically gifting us something? If so, where is the line between a stay that isn't a gift and a stay that is?

The second part of this question is, can we contribute anything to the household without them having to declare their house as a rental and deal with all the hassle that comes along with that? If we buy groceries, do they then have to view that as rent because we're paying for something?

This situation falls fairly well outside the box, as I've realized looking into insurance and other stuff that typically accompanies relocating. Given that we're not tenants with a lease or anything like that, we would like to keep things as easy as possible, while not running afoul of tax law.

[bacchi]

Are your friends claiming your room(s) as a rental on Schedule E?

The rules are intended to prevent a situation where the renter gets a sweet deal at $1/month and the landlord gets to depreciate the property and deduct maintenance and utilities, etc. Taxpayers are subsidizing the renter and landlord (more so than usual) in this case.

Even if it were considered a gift, the annual gift allowance is $14,000/person/yr. It's highly unlikely your room and common area is worth more than that.

In other words, don't worry about it.

[Mr. Green]

Are your friends claiming your room(s) as a rental on Schedule E?

The rules are intended to prevent a situation where the renter gets a sweet deal at $1/month and the landlord gets to depreciate the property and deduct maintenance and utilities, etc. Taxpayers are subsidizing the renter and landlord (more so than usual) in this case.

Even if it were considered a gift, the annual gift allowance is $14,000/person/yr. It's highly unlikely your room and common area is worth more than that.

In other words, don't worry about it.

Our friends don't want to declare the house a rental. It would make their taxes more complicated and require them to keep track of depreciation. But they also don't want to omit something they would be required to report.

If I did want to pay them some money for letting us stay (we are increasing their utility bills after all), would they have to declare that as rent? Or is that where you're saying the gift tax exclusion comes into play?

[SeattleCPA]

Are your friends claiming your room(s) as a rental on Schedule E?

The rules are intended to prevent a situation where the renter gets a sweet deal at $1/month and the landlord gets to depreciate the property and deduct maintenance and utilities, etc. Taxpayers are subsidizing the renter and landlord (more so than usual) in this case.

Even if it were considered a gift, the annual gift allowance is $14,000/person/yr. It's highly unlikely your room and common area is worth more than that.

In other words, don't worry about it.

Our friends don't want to declare the house a rental. It would make their taxes more complicated and require them to keep track of depreciation. But they also don't want to omit something they would be required to report.

If I did want to pay them some money for letting us stay (we are increasing their utility bills after all), would they have to declare that as rent? Or is that where you're saying the gift tax exclusion comes into play?

The rules for your friends situation are pretty well laid out in Internal Revenue Code Section 280A (you or they might want to search on that). In a nutshell, they don't get any tax benefits from an arrangement like you guys have. Also if you kicked in a little money they should report but won't pay taxes on it (almost surely) because of the way the bookkeeping works.

I agree with the other comments about "don't worry about gift tax reporting etc" ...