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Did you rent out your property this summer?

Posted on August 10, 2017

Summertime is vacation time, and for some Teipen Selanders Poynter & Ayres clients, that means renting out their property. So what does that mean, come tax time?

Planning ahead for taxes is wise, say TSPA CPAs. The IRS states that, “Receiving money for the use of a dwelling which is also used as a taxpayer’s personal residence, generally requires reporting the rental income on a tax return.”

There’s an upside to this, too. Certain rental expenses become deductible and will reduce the total amount of rental income that’s subject to tax.

Here’s what to know if you rent out your property:

  • The IRS classifies a dwelling unit as a house, an apartment, condominium, mobile home, vacation home, or even a boat.
  • Your dwelling unit is considered your residence if you used it for personal purposes during the tax year for the greater of: 14 days or 10% of the total days rented to others at a fair rental price.
  • Yes, according to the IRS, it is entirely possible to use more than one ‘dwelling unit’ as a residence during the year.
  • No, rental expenses cannot be more than the rent received.

Personal Use: 

Personal use means use by the owner, owner’s family, friends, other property owners and their families. Personal use includes anyone paying less than a fair rental price.

How to Divide Expenses:

Special rules generally apply to the rental of a home, apartment or other dwelling unit that is used by the taxpayer as a residence during the taxable year. Our CPAs recommend that your rental income be reported in full, with all upkeep and maintenance expenses divided between personal and business purposes. Special deduction limits apply, so be sure to consult with your CPA.

What if your dwelling is rented out fewer than 15 days during the year? In this case, according to Teipen CPAs, none of the rental income is reportable and none of the rental expenses are deductible.

For more information:

Contact your TSPA CPA or check out Schedule E at IRS.gov to learn more about reporting rental income and rental expenses on Supplemental Income and Loss Schedule E. Rental income may also be subject to the Net Investment Income Tax.

Typically, only mortgage interest and real estate taxes will be the deductible expense for your personal use of the residence, and are shown on Schedule A.

Find out more about these rules; see Publication 527, Residential Rental Property. You can also access https://go.usa.gov/xNHTy#IRS or go to IRS.gov and download:

Confused? You’re not alone. Give us a call to help keep your summer plans as uncomplicated and hassle-free as possible.