If you receive income from the rental of a dwelling unit, such as a house or apartment,
there are certain expenses you may deduct. These expenses reduce the amount of rental
income that is taxed. You will generally report such income and expenses on Schedule E (Form 1040). However, if you also use the
dwelling unit as a home, certain restrictions apply to the deduction of your rental
expenses.
You are considered to use a dwelling unit as a home if you use it for personal purposes
during the tax year more than the greater of: 14 days or 10% of the total days it is
rented to others at a fair rental price.
A day of personal use of a dwelling unit is any day that it is used by:
- You or any other person who has an interest in it, unless you rent your interest in it
to the other owner as his or her main home under a shared equity financing agreement,
- A member of your family or a member of the family of any other person who has an
interest in it, unless the family member uses it as his or her main home and pays a fair
rental price,
- Anyone, under an agreement that lets you use some other dwelling unit; or
- Anyone, at less than fair rental price.
If you use the dwelling unit for both rental and personal purposes, you generally must
divide your total expenses between the rental use and the personal use based on the number
of days used for each purpose.
If you use a dwelling as a home and rent it for fewer than 15 days during the year, do
not report any of the rental income and do not deduct any expenses as rental expenses. In
this case, you may deduct some expenses on Schedule A (Form 1040), such as mortgage
interest, property taxes, and any casualty losses.
If you do not use the dwelling unit as a home and you are renting to make a profit,
your deductible rental expenses can be more than your gross rental income, subject to
certain limits. For information on these limits, see Topic 425, Passive
Activities - Losses and Credits. However, if you use the dwelling unit as a home,
losses are subject to stricter limitations.
Order Publication 527, Residential Rental Property (Including
Rental of Vacation Homes) by calling 1-800-829-3676.
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