If you receive rental income from renting to others a dwelling unit, such
as a house or an apartment, 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 Form 1040 (PDF) and Schedule
E. 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. Your rental losses, however, may be limited
by the "at-risk" rules and the passive activity loss rules. For information
on these limits, refer to Publication 925, Passive Activities
and At-Risk Rules. However, if you rent a dwelling unit that you also
use as a home, your deductible rental expenses will be limited.
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 used as a home. If you live in your vacation home for the other 30 days
of the year, your vacation home is also a dwelling unit used as a home unless
you rent your vacation home to others at a fair rental value for 300 or more
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 your rental expense in excess of your gross rental income.
If you itemize your deductions on Form 1040, Schedule A (PDF),
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).
