Can You Write Off Grandchildren Cutting Grass on a Rental Property?
If you rent out a house or apartments, you can claim money you spend on the property as a tax deduction. That includes the costs of maintenance, such as fixing the plumbing, replacing a dead refrigerator and paying someone to mow the lawn. Hiring your grandchildren to do some of the work is a legitimate deduction if your arrangement complies with the IRS rules.
Deducting Expenses
If you use a property solely for rentals, you can write off your expenses and deduct your net losses from your non-rental income. If you sometimes use the house yourself, or let family use it for less than market rate, you must divide up expenses between the rental and personal time and only deduct the rental part. If the personal use exceeds the IRS limits, you can still deduct rental expenses, but you can't subtract net losses from other income. You can, however, carry the loss over to a future year.
Employing Children
It's perfectly legal to hire family members to do work for you. You can deduct the money you pay your grandchildren to mow the lawn just as if they were strangers. You must, however, pay them at the going rate for mowing lawns: Paying them double or triple what the job is worth to claim a larger deduction isn't acceptable. Nor would having them do work on your personal home as part of the same assignment, then claiming a deduction for mowing both houses.
Employee or Not
If you're claiming your grandchildren's work as an expense, you have to decide if they are employees or independent contractors. If your grandchildren are employees, you may have to withhold taxes and take out Social Security and Medicare as well. As independent contractors, you don't do any of that. The IRS has guidelines for determining if someone is an employee: If you decide when and how the job is done and how they're going to be paid, the kids may qualify as employees.
Paperwork
If you decide your grandchildren qualify as employees, you need to treat them that way, writing out a W2 and sending it to them at the end of the tax year. If they qualify as independent contractors, you need to draw up a 1099 form if the amount you paid them comes to more than $600 for the year. If the amount is under that, you don't need a 1099, but the kids still have to treat the payments as taxable income.
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