Gross Income - Rental Income or Loss - Rental of Residence

4 important questions on Gross Income - Rental Income or Loss - Rental of Residence

What is the treatment of a residence rented for fewer than 15 days per year?

If the residence is rented for fewer than 15 days per year, it is treated as a personal residence. The rental income is excluded from income tax

Mortgage interest (first or second home) and real estate taxes are still allowed as itemized deductions.

Depreciation, utilities, and repairs are not deductible.

How is a residence treated if rented for 15 or more days and used personally?

If the residence is rented for 15 or more days, and is used for personal purposes for the greater of
  1. more than 14 days or
  2. more than 10 percent of the rental days

It is treated as a personal/rental residence. Expenses must be prorated between personal and rental use.

For a personal-rental property, how does one deduct mortgage interest and property taxes compared to other expenses?

  • Deductions for rental mortgage interest and property taxes are allocated = rental days / 365.
    • The personal portion may be deductible on Schedule A if the taxpayer itemizes.
  • Utilities, insurance, and depreciation are allocated = rental days / total days the property was used
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What is the limitation on deducting rental use expenses for a personal-rental property?

Rental use expenses are deductible only to the extent of rental income, but unused rental expenses may generally carry forward to offset future rental income from the property.

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