Rev. date: 2/15/2011You 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:
There is a special rule if you use a dwelling unit as a home
and the dwelling unit is rented for fewer than 15 days during the tax year.
In this case:
It is possible that you will use more than one dwelling unit
as a 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: 2/15/2011In 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.
-
Rental of a dwelling unit:
-
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 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.
-
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,
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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