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Adam Smith is a self-employed artist and is married with four children. On 1 April 2013, he
borrowed a sum of money to buy an apartment for long term investment purposes. Currently, the
apartment is rented out to his grandson, Jake for $400 per week although most apartments around
that area were rented out for $500 per week. Jake lives in the apartment with his girlfriend.
Adam also hired an office space at a prime location for four months to display and sell his art
work from 1 March 2014. The rental is $7,000 per month and he paid $28,000 on 1 March 2014
to cover the 4 month period.
ISSUE 1.1
Will Adam be assessed on the $400 rental per week that he charged Jake or will he be assessed
on $500 per week which is the market rate?
CONCLUSION:
Solution
According to the IRS, if you rent out a dwelling unit to anyone at less than fair market value, that
period is considered your personal use of the property.
The amount of deduction applicable would be based on actual rent and not market value. So,
$400 per week.

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Adam Smith is a self-employed artist and is married with four children.docx

  • 1. Adam Smith is a self-employed artist and is married with four children. On 1 April 2013, he borrowed a sum of money to buy an apartment for long term investment purposes. Currently, the apartment is rented out to his grandson, Jake for $400 per week although most apartments around that area were rented out for $500 per week. Jake lives in the apartment with his girlfriend. Adam also hired an office space at a prime location for four months to display and sell his art work from 1 March 2014. The rental is $7,000 per month and he paid $28,000 on 1 March 2014 to cover the 4 month period. ISSUE 1.1 Will Adam be assessed on the $400 rental per week that he charged Jake or will he be assessed on $500 per week which is the market rate? CONCLUSION: Solution According to the IRS, if you rent out a dwelling unit to anyone at less than fair market value, that period is considered your personal use of the property. The amount of deduction applicable would be based on actual rent and not market value. So, $400 per week.