In February 2004, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. In 2009, she rented it all 12 months for a monthly rental fee of $800. In addition to her rental income of $9,600 (12 x $800), Marie had the following expenses.
|Fire insurance (1-year policy)||250|
|Real estate taxes imposed and paid||500|
Marie depreciates the residential rental property under MACRS GDS. This means using the straight line method over a recovery period of 27.5 years.
She uses Table 2-2d to find her depreciation percentage. Because she placed the property in service in February 2004, she continues to use that row of Table 2-2d. For year 6, the rate is 3.636%.
Marie figures her net rental income or loss for the house as follows:
|Total rental income received |
($800 × 12)
|Minus: Expenses|| || |
|Mortgage interest||$8,000|| |
|Fire insurance||250|| |
|Miscellaneous repairs||400|| |
|Real estate taxes||500|| |
|Maintenance|| 200 || |
|Total expenses|| –9,350 |
|Minus: Depreciation ($120,000 x 3.636%)|| −4,363 |
| Net rental loss for house || $4,113 |
| || || |
Marie had a net loss for the year. Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Marie also meets all of the requirements for not having to file Form 8582. She uses Schedule E, Part I, to report her rental income and expenses. She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 23. Marie's Schedule E is shown next. Form 4562 is not required. See Publication 946 for information on how to prepare Form 4562.