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 home. (See Figuring Rental Income and Deductions, later in this chapter).
You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of:
- 14 days, or
- 10% of the total days it is rented to others at a fair rental price.
See What Is a Day of Personal Use,
earlier on this page.
If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. Instead, count it as a day of personal use in applying both (1) and (2) above (see Example 3 under Fair rental price, next). However, this rule does not apply when dividing expenses between rental and personal use (see Dividing Expenses, later, for details). taxmap/pubs/p527-018.htm#en_us_publink100027430
A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property.
Ask yourself the following questions when comparing another property with yours.
- Is it used for the same purpose?
- Is it approximately the same size?
- Is it in approximately the same condition?
- Does it have similar furnishings?
- Is it in a similar location?
If any of the answers are no, the properties probably are not similar.
The following examples show how to determine whether you used your rental property as a home.taxmap/pubs/p527-018.htm#en_us_publink100027432
You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. You rented the basement apartment at a fair rental price to college students during the regular school year. You rented to them on a 9-month lease (273 days). You figured 10% of the total days rented to others at a fair rental price is 27 days.
During June (30 days), your brothers stayed with you and lived in the basement apartment rent free.
Your basement apartment was used as a home because you used it for personal purposes for 30 days. Rent-free use by your brothers is considered personal use. Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days).taxmap/pubs/p527-018.htm#en_us_publink100027433
You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. You figured 10% of the total days rented to others at a fair rental price is 3 days.
The room was used as a home because you used it for personal purposes for 21 days. That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days).taxmap/pubs/p527-018.htm#en_us_publink100027434
You own a condominium apartment in a resort area. You rented it at a fair rental price for a total of 170 days during the year. For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Your family actually used the apartment for 10 of those days. Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. You figured 10% of the total days rented to others at a fair rental price is 16 days. Your family also used the apartment for 7 other days during the year.
You used the apartment as a home because you used it for personal purposes for 17 days. That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days).taxmap/pubs/p527-018.htm#en_us_publink100027435
Discussed below are exceptions to the rules for personal use of a rented dwelling unit.taxmap/pubs/p527-018.htm#en_us_publink100027436
If you use the dwelling unit as a home and you rent it fewer than 15 days during the year, that period is not treated as rental activity. Do not include any of the rent in your income and do not deduct any of the rental expenses. See Dwelling Unit Used as a Home, earlier. taxmap/pubs/p527-018.htm#en_us_publink100027437
For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Do not count them as days of personal use if:
- You rented or tried to rent the property for 12 or more consecutive months.
- You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property.
However, this special rule does not apply when dividing expenses between rental and personal use. See Property Changed to Rental Use
in chapter 4.
On February 28, 2007, you moved out of the house you had lived in for 6 years because you accepted a job in another town. You rented your house at a fair rental price from March 15, 2007, to May 14, 2008 (14 months). On June 1, 2008, you moved back into your old house.
The days you used the house as your main home from January 1 to February 28, 2007, and from June 1 to December 31, 2008, are not counted as days of personal use. Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses.taxmap/pubs/p527-018.htm#en_us_publink100027439
On January 31, you moved out of the condominium where you had lived for 3 years. You offered it for rent at a fair rental price beginning on February 1. You were unable to rent it until April. On September 15, you sold the condominium.
The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home.