If you receive rental income from renting to others a dwelling unit, such
as a house or an apartment, to others, you may deduct certain expenses. These
expenses, which may include interest, taxes, casualty losses, maintenance,
utilities, insurance, and depreciation, will reduce the amount of rental income
that is taxed. You will generally report such income and expenses on Schedule
E, Form 1040. If you are renting to make a profit and do not use
the dwelling unit as a home, your deductible rental expenses can be more than
your gross rental income, subject to certain limits. For information on these
limits, refer to Topic 425, Passive Activities – Losses
and Credits. However, if you rent a dwelling unit that you also use as
a home, your deductible rental expenses are subject to stricter limitations.
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: 14 days or 10%
of the total days it is rented to others at a fair rental price. 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 home for 11 months, your home is a dwelling
unit. If you live in your vacation home for the other 30 days of the year,
your vacation home is also a dwelling unit, unless you rent your vacation
home to others at a fair rental value for more than 300 days during the year.
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 to another owner as his or her main home under a shared equity financing
agreement;
- A member of your family or of a 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. However, you will not
be able to deduct all your expenses of rental use if your rental expenses
exceed your gross rental income. If you itemize your deductions on Schedule
A, Form 1040, you may still be able to deduct mortgage interest,
property taxes, and casualty losses on that schedule.
There is a special rule if you use a dwelling as a home and rent it for
fewer than 15 days. In this case, do not report any of the rental income and
do not deduct any expenses as rental expenses.
Another special rule applies if you rent part of your home to your employer
and provide services for your employer in that rented space. In this case,
report the rental income, but do not deduct any expenses as rental expenses.
Refer to Publication 527, Residential Rental Property (Including
Rental of Vacation Homes).
