• March 20, 2023

Should we rent out the apartment over our garage in exchange for free housekeeping?

Dear Quentin,

My wife and I are both in our 70s and are unlikely to downsize from our current home, which has three bedrooms and one story living. The house also includes a 540 square meter guest suite on a second level above our garage area with a separate entrance.

I told my wife that at some point we might consider making an arrangement with a student or someone willing to swap housing for an agreed house cleaning service.

How practical are such arrangements and would we come into conflict with tax and related issues that create potential liability? I want to learn more about pitfalls and even educate myself so I can ask smart questions of a lawyer if the idea deserves consideration.

Explore options

Love exploring,

It would usually be a smart idea to rent out the unused condo above your garage since you don’t have any plans or need to downsize. But think twice about it when you don’t need the money. If you’ve taken the route you suggested, you will likely need to register your agreement with the Internal Revenue Service.

The IRS refers to such arrangements as “exchanges for goods and services”. That is, there is an exchange of goods and services (in this case housing and housekeeping duties), but they have a reasonable market value. Your tenant / housekeeper would get a plum deal.

“You must include in the gross income in the year of receipt the fair market value of any goods or services you bartered,” according to the IRS. “Usually there is no cash exchange. An example of barter is where a plumber swaps plumbing services for a dentist’s dental services. “

You can read more about it Here.

However, I have concerns. First, you will end up choosing someone (and vice versa) who needs an apartment rather than someone who actually wants to become your housekeeper. Second, if it doesn’t work out, they still live above your garage.

It’s an unnecessary blurring of boundaries and responsibilities. If you want to use your apartment, I recommend renting it out to someone who has a lease and avoiding any bargaining agreements that you could legally expose if that person had an accident on your property, for example.

Act cautiously.

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