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The tenant is a relative, a brother.

I thought so.

I have been audited by the IRS in the past concerning this deduction and everything was satisfactory to them.

I'm again going to guess that this was in a year when he was paying a fair market rent. In that situation, your deductions are fine.

But now we've got a year when he's not paying rent. That changes things. And it makes them a bit difficult.

If he never pays the rent, you would not be able to deduct your expenses (except insofar as they are allowable as personal deductions - mortgage interest and property taxes). If he does pay the back rent, I'd guess that your deductions would be OK.

The problem is that you need to deal with your 2006 taxes while the ultimate fate of the back rent is not yet known. If you're feeling conservative, I'd skip the deductions after he quit paying the rent. A more aggressive approach would be to claim the deductions now. Then if he doesn't pay the rent in 2007, skip them in that year.

I don't really have a good answer for you on this one. Just some things to think about.

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