Tax implications of owning a rental property that is loosing money?

I have a property that I started renting to a family meber when I needed to relocate for work. I cover the cost of the morgtage but am expecting to end up with a couple thousad doallars in losses each year. I belive I can write off the losses in the short term but is there a requirement that I ever turn a profit if I hold onto the property? I am happy to continue renting the property to my family member as a generous gift but am looking if I can at least minimize the taxes.

Thanks for the posters so far. You are correcet that I should not use the term gift.

Here's the deal...I rent the house within fair value of the market but I discounted the rent for the first year to help the renter get thought the adjustment since it is more costly than thier previous home.

Each month I am out about $150 of direct expenses and then I have had some household repairs (furnace, roots in sewage pipe, broken toilet). At the end of the year I will probably net a $2000 loss on the property.

If it were not for the rapairs and maintainence could I convice the IRS that I intended to profit from the property?

I would recommend that you no longer refer to renting to your relative as a generous gift....
It implies [or confirms] that you are renting "below market".
It would be better to express their favorable rate with incentives [tenant caretaker - long term favor to avoid vacancies, etc.]
Rentals are very competitive now, since unsold property is being rented to minimize negative cash flow, but you want to establish a "for profit" incentive, even if only a long-term gain on property investment [not to be confused with "at profit"].
The expectation of a profit in 3 out of 5 years applies more to a business venture when it can otherwise be construed as a hobby... whereas your rental is an investment holding.

What you describe in your addendum is why owning property as investment is a good tax shelter. You would have certain expenses whether or not you had rental income, as many "investors" who couldn't "flip" their short-term stake will attest!! As an investment, your expected "profit" is the capital gain in the end....
Your main contingency would be whether you are claiming depreciation expense, and if you ever expect to live in home again. [which may still be an advantage to claim the $250K exemption from capital gain...]

Renting for a loss for a long time is OK, file your schedule E and answer all the questions appropriately. I wouldn't treat the renting of the property at a loss as a gift however, that may take you down the wrong IRS road.

If you are renting the property to the family member below fair rental value, you can not deduct the loss it creates. There has to be a "profit motive".

Most rental property operates at a loss and the IRS knows this but, in order to take those losses, you must be renting it out at fair market value or above.

You have a "Not for Profit" rental that will net to "$0.00" (no gain / no loss) on your tax return.

First of all, watch the phrase generous gift: The IRS will make you file a gift tax return if you are renting for well below market value to a family member. The reason is that this deal is not considered an "arm's length transaction."

Second of all, are you actually receiving a rent check every month?

Here's how it works: You can claim up to 25,000 in losses from your rental property against other ordinary income if your AGI (adjusted gross income) is less than 150,000. Above 150,000 and those losses become suspended and carried over. Now another important element is when you sell the rental property: The IRS will make you recapture the depreciation that you should have taken on the rental home and you will be taxed on it.

When you sell your home, the suspended losses i wrote about come into play and they can help you reduce the amount of capital gain you will have to pay taxes on.

Get professional advice from your accountant. If you are sophisticated enough to have a rental property, you should be able to invest in getting advice from your CPA.
There are way too many details that you have left out. You not only have to think about taxes on this home but if you are really treating it as income property -- you need to consider deprecations---cap rate etc. So, it is in your best interest to speak to a professional.

As long as you are renting the property for near fair market value, you can take your losses on schedule e.

Do not use the term "gift". It's a common and accepted practice to offer incentives for people moving into your property.

Make sure you take the depreciation. I've shown a loss on my schedule e for 6 years, and no questions from the IRS yet.

Use a CPA if you need to. Personally, I just use TurboTax.