Renting to family members

I’ve got a friend whose dad is partially disabled from a stroke, and as a result his dad lives with him and my friend has power of attorney over his finances. My friend is currently home shopping and looking for something duplex-style so his family can have their own space, and his dad can have his own space, and still be very close together.

Can he rent out one half of the duplex to his father without creating any sort of red flags, since he controls his dad’s money? Considering he charges a fair market rent and doesn’t do anything sketchy, will this throw up any red flages with a loan officer, or the IRS, or anybody?

if Dad is not his dependent and everything is kept arms length, then no problems. sign a lease, market rent - no discounts, treat it straight up like any other rental property, report rental income, the whole deal.

This may or may not be a smart tax and/or cashflow decision. We’d need to do some estimates and planning.

Taxes notwithstanding, it still may be a smart decision to preserve sanity. some things are worth paying for.

Now, if Dad is his dependent for tax purposes, then things change.

Thanks for the response Mark. I’ll have to check with my buddy and find out if his Dad is legally considered his dependent or not, I’m not sure off the top of my head…