A question came in recently from a couple who own three properties across two states. Their kids and grandkids use them freely throughout the year, and everything seemed fine until their CPA raised concerns about imputed rental income and potential gift tax exposure. Now they’re wondering if they’ve been doing something wrong for years, and their words were that my wife is convinced we’ve been handling this incorrectly.
Almost certainly, you haven’t. But this is worth unpacking carefully, because the framing here has some real red flags.
What Imputed Rental Income Actually Means
Imputed rental income is a tax concept that applies when there’s a business or employment benefit tied to the use of property. Here’s a clear example: say we here at Scholar Advising owned a beach house and let our employees use it as a workplace perk. In that case, we’d need to determine the fair market value of that use, because it could be treated as taxable compensation. That’s the scenario where imputed rental income has teeth.
Your grandkids swimming at the lake on a Saturday? That is not that scenario. The framework doesn’t apply to personal-use property you’re graciously sharing with family at no charge.
Personal Use Has Its Own Rules
When you own property for personal use and allow family members to enjoy it without receiving anything in return, that falls under personal use, and it generally doesn’t trigger the kind of tax concerns your CPA raised. The IRS is not in the business of requiring you to invoice your children for a long weekend at the lake house.
Where things do get more complicated is when a property is also rented out commercially and the owner is claiming business deductions on it. If you’re telling the government this is a rental business and taking all of the associated write-offs, they are going to take a closer look at the weeks when family members are using it for free. That’s where the line between personal use days and rental use days starts to matter, and where documentation becomes important.
If that’s not your situation, if these are purely personal-use properties, you’re on solid ground.
What About Gift Tax?
The CPA also raised gift tax as a concern, and I want to address that directly. The annual gift tax exclusion in 2024 allows each spouse to gift up to $18,000 per recipient without any filing requirement. Combined, that’s $36,000 per recipient per year (commonly called gift-splitting between spouses). Unless your properties are generating rental value that exceeds that threshold per recipient, per year, you are almost certainly well within limits.
And even if you did exceed the annual exclusion, you’d file a gift tax return to report it, not necessarily pay any gift tax. That’s what the lifetime exemption is for.
I’m not a CPA, and if your situation has layers we can’t see from the outside, you should work with someone who can dig into the specifics. But the way this concern was presented has some gaps worth questioning.
When a Second Opinion Is Worth It
This is a genuinely good example of when getting a second opinion makes sense. Multi-state property ownership, combined with family use and questions about gift tax, is a real area of complexity. If your CPA encountered the concept of imputed rental income and applied it outside of its proper context, that’s a meaningful enough error to warrant a follow-up conversation.
The goal isn’t to be adversarial toward your CPA. They may have a legitimate concern in there that just isn’t being communicated clearly. Maybe they’re worried about something specific to how one of those properties is structured. Have the conversation and ask them to walk through exactly which scenario creates the risk they’re worried about.
If you get through that conversation and still don’t have a clear, specific answer, that’s when it makes sense to bring in someone with deeper experience in multi-state real estate and gift planning.
Keeping Clean Records as a Multi-Property Owner
If you own properties across multiple states and share them with family regularly, good record-keeping is your best protection regardless of the tax questions. The main thing to track is how each property is used: purely personal, or a mix of personal use and commercial rental.
For purely personal-use properties, there’s nothing unusual to report. For properties where you’re also renting commercially and claiming deductions, you’ll want to document your personal-use days carefully, because those days limit the deductions you can take on the rental side.
You don’t need to send invoices to your family. You just need to be organized about how you’re categorizing and using the properties, and you need advisors around you who understand the full picture.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on personal property use and family gifting rules, listen to the full podcast episode here.