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Publication 527


For Use in Tax Year 2014

(Including Rental of Vacation Homes)

Future Developments(p1)

For the latest information about developments related to Publication 527, such as legislation enacted after it was published, go to


Net Investment Income Tax (NIIT).(p1)
You may be subject to the Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount. Net investment income may include rental income and other income from passive activities. Use Form 8960, Net Investment Income Tax, to figure this tax. For more information on NIIT, go to and enter "Net Investment Income Tax" in the search box.
Photographs of missing children.(p2)
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.


Do you own a second house that you rent out all the time? Do you own a vacation home that you rent out when you or your family isn't using it?
These are two common types of residential rental activities discussed in this publication. In most cases, all rental income must be reported on your tax return, but there are differences in the expenses you are allowed to deduct and in the way the rental activity is reported on your return.
Chapter 1 discusses rental-for-profit activity in which there is no personal use of the property. It examines some common types of rental income and when each is reported, as well as some common types of expenses and which are deductible.
Chapter 2 discusses depreciation as it applies to your rental real estate activity—what property can be depreciated and how much it can be depreciated.
Chapter 3 covers the reporting of your rental income and deductions, including casualties and thefts, limitations on losses, and claiming the correct amount of depreciation.
Chapter 4 discusses special rental situations. These include condominiums, cooperatives, property changed to rental use, renting only part of your property, and a not-for-profit rental activity.
Chapter 5 discusses the rules for rental income and expenses when there is also personal use of the dwelling unit, such as a vacation home.
Finally, chapter 6 explains how to get tax help from the IRS.

Sale or exchange of rental property.(p2)

For Use in Tax Year 2014
For information on how to figure and report any gain or loss from the sale, exchange or other disposition of your rental property, see Publication 544, Sales and Other Dispositions of Assets.
Sale of main home used as rental property.(p2)
For information on how to figure and report any gain or loss from the sale or other disposition of your main home that you also used as rental property, see Publication 523, Selling Your Home.
Tax-free exchange of rental property occasionally used for personal purposes.(p2)
If you meet certain qualifying use standards, 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.
For information on the qualifying use standards, see Rev. Proc. 2008–16, 2008 IRB 547, at For more information on like-kind exchanges, see chapter 1 of Publication 544.

Comments and suggestions.(p2)

For Use in Tax Year 2014
We welcome your comments about this publication and your suggestions for future editions.
You can send us comments from Click on "More Information" and then on "Give us feedback."
Or you can write to:

Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
Ordering forms and publications.(p2)
Visit to download forms and publications. Otherwise, you can go to to order forms or call 1-800-829-3676 to order current and prior-year forms and instructions. Your order should arrive within 10 business days.
Tax questions.(p2)
If you have a tax question, check the information available on or call 1-800-829-1040. We cannot answer tax questions sent to the above address.


Useful items

You may want to see:

 463 Travel, Entertainment, Gift, and Car Expenses
 523 Selling Your Home
 534 Depreciating Property Placed in Service Before 1987
 535 Business Expenses
 544 Sales and Other Dispositions of Assets
 547 Casualties, Disasters, and Thefts
 551 Basis of Assets
 925 Passive Activity and At-Risk Rules
 946 How To Depreciate Property
Form (and Instructions)
 4562: Depreciation and Amortization
 5213: Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit
 8582: Passive Activity Loss Limitations
 Schedule E (Form 1040): Supplemental Income and Loss