Hotel Mom and Dad: Should you charge?

If your adult children are still living at home, you could make them pay rent. Consider these factors first.

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By Walter Updegrave, Money Magazine senior editor

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

NEW YORK (Money) -- Question: Should I charge rent to an adult child who's living at home and, if so, how much? I've been grappling with this issue for a while and was hoping you might be able to give me couple of pointers. --Frank

Answer: There's no one-size-fits-all answer to this question. It's largely a judgment call that comes down to specific circumstances and what you (and your child) are trying to achieve.

Let's say you've got a son who is working and can afford to live on his own, but prefers living at home. In that case, I'd say it makes perfect sense to ask him to pay rent that's comparable, say, to what someone in your area might pay for a decent one-bedroom apartment.

As a guide to what you might charge, you could call a local real estate agent, check out the classifieds in your area or visit sites like ForRent.com or Apartment Guide.

The reason I think asking for rent in such a case is not only acceptable but helpful for your child is that a young adult embarking on a career should understand what the real costs of living are.

Without monthly housing expenses, your son would no doubt have lots more disposable income, which could allow him to live larger on his salary than he otherwise could (a nicer car, better vacations, more partying with friends, etc.). But he would be getting a false impression of what it takes to live within his means. Essentially, he would be living in a fantasy world that's available only because you're subsidizing him. If he remains in such a situation long enough, it could make his eventual adjustment to the real world -- where people do have to pay rent or make mortgage payments and adjust other spending as a result -- more difficult.

On the other hand, you also want to be flexible. If your son is living at home out of economic necessity -- perhaps his salary is just too skimpy to allow him to make it on his own or he's grappling with a huge load of student loans -- then maybe you want to cut him some slack. You could just ask him to chip in for household expenses rather than charging him rent. You might consider the same or similar arrangement if, say, your son is living at home until he can save up enough dough to rent or buy his own place.

In some cases, you might want to be even more accommodating. If your son is back home because of some hardship -- he recently lost his job, is going through a divorce or whatever -- then I could see letting him live rent free with the understanding that this is a temporary deal until he gets back on his feet.

Of course, there may also be situations where rent isn't the real issue. The bigger question may be whether your son should be living at home at all.

Talkback: Do you think adult children who still live at home should pay rent?

I'm not saying there are never exceptions, but for the most part your goal as a parent is to raise your child so that eventually he wants to leave the nest and make it on his own. If you think that living at home is just a way for him (or you) to avoid this normal process of growing up, then it's probably not good for either of you to let your child continue to live in the house, regardless of how much he's willing to pay in rent.

One more thing: if you do end up charging rent to your child, you'll have to decide how you want to handle the payments from a tax point of view.

Technically, rent is taxable income, although Mark Luscombe, one of the tax gurus at CCH, says he doubts that such family arrangements are usually documented or reported. He also doubts that they're a top priority for the IRS. What might attract the feds' attention, though, is if you try to use such an arrangement to game the system and generate big losses to reduce other taxable income. If you want to delve more into the tax rules and regulations that apply to rental income and such, you can check out IRS Publication 527: Residential Rental Property.

But the most important issue here for most parents, I suspect, is whether it's a good idea for an adult son or daughter to be living at home, rent or no. And no IRS publication is much help there. That's something you and your family will have to decide.

Talkback: Do you think adult children who still live at home should pay rent? To top of page

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