Renting to Family or a Friend vs a Screened Market Tenant

CompareFacts checked November 8, 2026Reviewed by Gary E. Wilson, President and Designated Broker

Why this choice is bigger than it looks

Renting to a sibling, an adult child, a parent or a friend often starts as a favor. They need a place, you have one, and you trust them. The trouble usually shows up later: a repair you both expected the other to pay for, a rent that never changed, or a move-out nobody wants to talk about.

A market tenant is a stranger you choose through advertising and screening. The relationship is plainer from the start, but you take on fair housing rules for advertising and a screening process you must apply the same way to everyone.

Neither option is wrong. The goal of this guide is to show what changes, in law and in taxes, so you can choose on purpose.

The IRS fair rental price test

For federal taxes, the key question is whether you charge a fair rental price. IRS Publication 527 defines it as the rent a person who is not related to you would be willing to pay, and says rent is not a fair rental price if it is substantially less than rents for similar properties in your area (IRS Publication 527).

A day a family member uses the home counts as a day of personal use by you, unless the family member uses it as their main home and pays a fair rental price. For this rule, family means your spouse, siblings, half siblings, ancestors and lineal descendants. A day anyone uses the home at less than a fair rental price is also personal use, whether they are family, a friend or a stranger. The underlying rule is in 26 U.S.C. 280A.

Publication 527 gives two plain examples. Renting to your son at a fair rental price as his main home is not personal use by you. Renting an apartment to your mother at less than a fair rental price is. Personal use can limit what you deduct, and if a rental is not run to make a profit, you still report the rent but can no longer deduct rental expenses. Our post on rental property tax benefits covers the deductions themselves.

Washington tenant law applies to relatives too

The Residential Landlord-Tenant Act lists the living arrangements it does not cover, such as hotels, institutions and some employee housing. Renting to a relative or friend is not on that list (RCW 59.18.040). So the same rules apply:

• No deposit without a written lease and a signed move-in checklist (RCW 59.18.260).
• Any nonrefundable fee must be labeled nonrefundable in a written agreement, or it is treated as a refundable deposit (RCW 59.18.285).
• Deposits go into a trust account, and the move-out statement and any refund are due within 30 days (RCW 59.18.270 and 59.18.280).
• You need one of the causes in RCW 59.18.650 to end most tenancies, even if the tenant is your cousin.
• Rent cannot go up during the first 12 months, later increases are capped each year, and each increase needs 90 days' notice (RCW 59.18.700 and RCW 59.18.140).

The discount you cannot easily undo

That last rule matters most for family deals. If you start a relative well below market, the annual cap limits how fast you can bring the rent up, even if the relationship changes. And if you want the home back, a relative has the same just-cause protections as anyone else. RCW 59.18.650 sets the notice for each cause, such as at least 90 days when the owner or immediate family will move in.

So write down the plan up front: the rent, who pays which bills, how repairs work, and when the arrangement will be reviewed. A clear lease protects the relationship as much as the property.

Think about the other people in the home, too. If the named tenant later moves out, Washington requires you to give any remaining occupant who lived there for at least six months a notice to either apply to join the lease or leave within 30 days, and you may screen them like any applicant (RCW 59.18.650).

Fair housing once you advertise

If you rent to a relative without advertising, you are choosing a known person. Once you post a listing, fair housing rules shape what you can say and how you choose. Federal law bars any rental notice or ad that states a preference based on a protected class, and that ad rule applies even to owners who are otherwise exempt (42 U.S.C. 3604). The federal exemption for a single-family home rented by its owner is also lost when the owner uses a broker or agent (42 U.S.C. 3603).

Washington's law (RCW 49.60.222) applies to any person in a rental transaction, and its small-owner exception covers only the disability modification and accommodation rules. Our Fair Housing Act in Washington page covers the protected classes.

A practical rule: decide about the relative before you advertise. Once a listing is public, judge every applicant by the same written criteria.

What screening a market tenant involves

Before you collect any screening information, Washington requires written notice to the applicant of what you will check, what criteria can lead to denial, and the consumer reporting agency you use. If you deny or add conditions, you owe a written adverse action notice (RCW 59.18.257). Our step-by-step post on tenant screening in Washington walks through the order.

Wilson Management's tenant screening page says its review covers credit history, income and employment, rental history, background and eviction records, and that screening can be part of full management or of its tenant placement service. Some owners hire a manager even for a relative, so the lease, deposit and repairs stay at arm's length. Our guide to documents to gather before hiring a property manager lists what to have ready. If a relative or friend has offered to manage the home for you instead, that is a separate choice, covered in our guide on a licensed property manager vs a friend or relative.