They Thinking of Buying a Condo Near Campus When Their Granddaughter Enrolls and Rent the Other Two Bedrooms to Her Roommates. The Rent Covers the Mortgage, and When She Graduates They Still Own the Condo
Buying a condo near campus and renting rooms to your granddaughter's roommates sounds like a savvy retirement move, but the IRS has strict rules that can quietly erase every tax benefit if you get one detail wrong.
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When a grandchild enrolls in college, housing costs can definitely mount. The usual scenarios include grandparents buying a condo near campus instead of paying for a dorm, with the granddaughter taking one bedroom and two roommates renting the others. The granddaughter must pay fair market rent. If she does, the IRS treats the condo as a rental property, allowing depreciation and expense deductions that a family-occupied home would lose.
Your Granddaughter Can Count as a Paying Tenant
Normally, any day a relative uses a property counts as personal use. Publication 527 defines family to include grandparents and grandchildren. Too many personal days and the condo becomes a home in the IRS’s eyes, capping deductions at rental income and blocking tax losses. The limit is the greater of 14 days or 10% of the total days you rent it to others at a fair rental price. A granddaughter living there all school year exceeds it. The exception applies when the family member uses the dwelling unit as their main home and pays a fair rental price. Her days then count as rental days, reported on Schedule E like any other landlord.
Where the Rule Lives in Federal Law
The rule comes from 26 U.S. Code §280A(a), which bars deductions with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence. Section 280A(d)(3) carves out rental of a unit used by a family member at fair rent as her principal residence. IRS Publication 527 applies the same rule to individual taxpayers.
Who Qualifies and Who Gets Shut Out
You qualify if the granddaughter pays market rent and the condo is her main home. A student spending summers at her parents’ house may face questions about principal residence. A 12-month lease strengthens the case.
A family discount disqualifies the arrangement, as do your own stays: football weekends and parent visits count as personal days. The special allowance for active landlords is up to $25,000, phasing out when modified adjusted gross income passes $100,000 and going away at $150,000. Disallowed losses carry forward.
Steps to Run the Condo as a Real Rental
- Set her rent at market. Save similar room listings near campus as proof.
- Sign written leases with all three tenants on matching terms.
- Collect her rent monthly by electronic transfer from her own account.
- Deduct mortgage interest, property taxes, HOA dues, insurance, repairs, and utilities against rent.
- Depreciate the building over 27.5 years.
- Stress-test the mortgage before buying. The 10-year Treasury yield was 5.29% on September 30, 2026, up from 4.10% a year earlier. Ask your lender how it treats an investment property, since investment loans carry stricter terms.
Tax Bills That Show Up After Graduation
Pricing the rent correctly matters most. If she lives free, it’s personal use, which means deductions shrink and rental losses disappear. You also become a landlord to three students, managing security deposits, repairs, and local rental rules. Rent from two bedrooms must cover HOA dues, insurance, and vacant months.
Selling brings a tax bill. The $250,000 home-sale exclusion applies only to your main home. Since you never lived in the condo, sale gain is taxable. Depreciation recapture is taxed at a maximum rate of 25%. Joint taxpayers with income above $250,000 may also owe the 3.8% net investment income tax.
Appreciation can offset those taxes, but isn’t guaranteed. Home prices, per the Case-Shiller National Home Price Index, stood at 337.306 in July 2026, up 1.9% from a year earlier, but dropped from 331.564 to 327.028 in the second half of 2025. Campus prices depend on enrollment, new student housing, and local supply. Before closing, verify the HOA’s rental rules, similar room rents, and loan terms.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
