Rev. date: 12/21/2012
You must first consider if you use any dwelling unit as a home. You are considered to use a dwelling unit as a home if you use it for personal purposes during the tax year for more than the greater
of:
- 14 days
- 10% of the total days it is rented to others at a fair rental
price
There is a special rule if you use a dwelling unit as a home and the same dwelling unit is rented for fewer than 15 days during the tax year. In this
case:
- Do not report any of the rental income.
- Do not deduct any expenses as rental expenses.
- If you itemize your deduction on
Schedule A (Form 1040),
Itemized Deductions, you may be able to deduct mortgage interest, property taxes, and any casualty
losses.
It is possible that you will use more than one dwelling unit as your home during the year. For example, if you live in your main dwelling unit for 11 months and in your vacation home for 30 days, your main dwelling unit is a home and your vacation dwelling unit is also a home unless you rent your vacation dwelling unit to others at a fair rental value for more than 300 days during the
year.
Rev. date: 12/21/2012
In general, if you receive income from the rental of a dwelling unit, such as a house, apartment, or duplex, there are certain expenses you may
deduct.
Besides knowing which expenses may be deductible, it is important to understand potential limitations on the amounts of rental expenses that may be deducted in a tax
year.
There are several types of limitations that may apply.
Not for profit activities:
- If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental
income.
- Any rental expenses in excess of rental income cannot be carried forward to the next
year.
- Refer to
Publication 527,
Residential Rental Property, and
Publication 535,
Business Expenses.
Rental of a dwelling unit (for profit):
- The tax treatment of rental income and expenses for a dwelling unit that you also use for personal purposes depends on whether you use it as a residence, which depends on how many days such unit is used for personal
purposes.
- Renting to a relative may be considered personal use even if they are paying you rent, unless the family member uses the dwelling unit as his or her main home and pays rent equivalent to the fair rental
value.
- Refer to Publication 527,
Residential Rental Property.
Passive Activity losses:
- In general, you can deduct passive activity losses to the extent of passive activity income (a limit on loss
deductions).
- You carry any excess loss forward to the following year or years until used, or you carry any excess loss forward until the year you dispose of your entire interest in the activity in a fully taxable
transaction.
- There are several exceptions that may apply to the passive activity limitations. Refer to Publication 527,
Residential Rental Property and Publication 925 (PDF),
Passive Activity and At-Risk Rules.
At risk rules:
The at-risk rules limit your losses from most activities to your amount at risk in the
activity.
- You treat any loss that is disallowed because of the at-risk limits as a deduction from the same activity in the next tax
year.
- If your losses from an at-risk activity are allowed in a previous taxable year and your amount at risk drops below zero at the close of any later taxable year, then you must include a recapture amount in your gross income for such later taxable
year.
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