Residential 
Rental 
Property

Beginning in 2011, qualified joint ventures reporting rental real estate income not subject to self-employment tax must report that income on Schedule E instead of Schedule C. See the Instructions for Schedule E (Form 1040).

For qualified property acquired after December 31, 2010, and placed in service before January 1, 2013, the additional first year depreciation is 100% of the depreciable basis of the property instead of 50%. See Publication 946, How To Depreciate Property, for more information.

The IRS has created a page on IRS.gov for information about Publication 527, at www.irs.gov/pub527. Information about any future developments affecting Publication 527 (such as legislation enacted after we release it) will be posted on that page.

You may qualify for a tax-free exchange (a like-kind or section 1031 exchange) of one piece of rental property you own for a similar piece of rental property, even if you have used the rental property for personal purposes. You must meet the following criteria.

• You own the rental property for at least 24 months before the exchange.
• During the 2 years before the exchange you rent the property to another person at a fair rental price for 14 days or more.
• Your personal use of the rental property during each of the two years before the exchange does not exceed the greater of 14 days or 10% of the number of days the property is rented.

For information on like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets, chapter 1.

If, prior to December 31, 2010, you placed in service certain longer-lived and transportation property with a recovery period of 20 years or less, you can elect a 50% special depreciation allowance (in addition to your regular MACRS depreciation deduction). For certain longer-lived and transportation property with a recovery period of 20 years or less acquired after December 31, 2010, and placed in service before January 1, 2013, your special depreciation allowance is 100% unless you choose not to take the special depreciation allowance. See Publication 946 for more information.

You can take a special depreciation allowance for qualified property located in areas damaged by the hurricanes occurring during 2005. To be qualified, the property must be located in specified counties or parishes, acquired after August 27, 2005, and placed in service before January 1, 2012. For more information, see chapter 3 in Publication 946.

You can take a special depreciation allowance for qualified property placed in service in federally declared disaster areas in which the disaster occurred after December 31, 2007, and before January 1, 2013. The qualifying property must be placed in service on or before the last day of the third calendar year following the applicable disaster date (the fourth calendar year in the case of nonresidential real property and residential rental property). For example, in September 2011 certain areas of the Northeast were declared federal disaster areas due to Hurricane Irene. To qualify for the special depreciation allowance, you would have to place an asset in service, in the disaster area by December 31, 2014 (December 31, 2015 in the case of nonresidential real property and residential rental property). A list of the federally declared disaster areas is available at the FEMA website at www.fema.gov. For more information, see chapter 3 in Publication 946.

You can generally deduct, rather than capitalize, qualified disaster expenses paid or incurred after December 31, 2007. See Publication 535, Business Expenses, for more information.

You can deduct, rather than capitalize, 50% of qualified disaster recovery assistance clean-up costs paid or incurred on or after the applicable disaster date, and before January 1, 2011. Refer to Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, to see if your rental property is in a qualifying area and for details on the deduction.

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.