Private Use of Rental Property

The guidelines associated with the personal and leasing utilization of premises are included in this article in the Landlord’s Tax Guide. This may be either because you are leasing out a space in the same property which you are living in, or you have got a vacation residence that you might privately employ a few weeks out of the calendar year and rent the remainder of the time. This information will not apply to you at all if you never use your rental property for personal use. However, if you do, you will want to keep reading.

Property rented for less than fifteen days. Any time you leased your property for less than fifteen days total in the past year, you don’t have to file any of your rental revenue. If this is the scenario, then the real estate property is going to be considered personal for taxation considerations, and on Schedule A of Form 1040, it is possible to deduct any of the property associated expenditures as personal.

Employing Your Holiday Home as a Part Time Rental

Personal use test. It’s important to work with some type of numeric formula to determine the total number of days during which the rental property was used for personal use. That is the personal use test. How you deduct your rental expenses is going to largely be determined by whether or not the personal use test is satisfied. Finding out the actual quantity of days in the past year in which the real estate property was leased out at fair market value is the initial step in calculating the personal use test. The next step is to multiply that number of days by ten percent. We will label the outcome the “total days rented” or “TDR” for short. The next stage will be to figure out how many days the rental property was employed for private use. We can label this “personal use days” or “PUD” abbreviated. Look at the table below for a vision of the personal use test.

NOTE: “Personal use” consists of use by you, any other owners of the home and property, plus the families of all individuals who own the property, unless of course your family member is paying out rent at fair market value.

If TDR is…

and PUD is…

then the personal use test is…

over 14

less than TDR

not satisfied

under 14

less than 14

not satisfied

over 14

more than TDR


under 14

more than 14



If test is satisfied. If the personal use test is satisfied, you will deduct your rental expenses only to the extent of the rental income. A net rental loss will not be attainable, but when there are any additional expenditures you do not write off this year, they can be moved forward to later years, provided that there is an adequate sum of rental earnings in the tax year in which you claim them.

If test is not satisfied. Your own leasing costs will never be restricted by the rental income if the personal use test is not satisfied. You could deduct your rental costs and also have a net rental loss. There could be a few passive activity rules, however, which may still restrict the rental loss tax deduction.

Computing all of your rental expenditures. A number of expenses should be allocated between leasing and personal application. These include expenditures that will have already been charged no matter the use, such as real estate taxes and mortgage interest. Find out the whole number of personal use days. Then, you will need to determine the total quantity of TDR. After that, divide rental days by the sum of PUD and rental days. The end result is the rental percentage. Finally, you have to multiply the total cost of your expenses by the leasing percentage that you have established, and then the result will be the rental deductible part.

Leasing a Section of Your House

You need to expressly allot all your costs in between private usage and leasing use if you rent out a part of your own personal home. The IRS allows a little versatility with the method you employ; just make sure it’s consistent from year to year. Some people choose the option of taking the number of rooms within their residence along with the number of rooms within the home, and divide them. Dividing the rented sq . ft . by the residence’s total sq . ft . is another option that lots of people go for. You’ll end up with rental costs and personal costs. Those allotted to the leasing income can be deducted as such, and you can use Schedule A of Form 1040 to deduct what’s left.

Kirkland CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

Required Tax Documents Concerning Reporting Rental Property Activity

For a property owner, to completely account for and report your rental property earnings to the IRS, you’ll need various IRS tax forms which will be specified within this article. As outlined here, the tax documents required change according to the kind of official company who possesses the property (individual, partnership, corporation, or LLC). For further information regarding legal entity rental property ownership, look at the article included in this Guide, titled Best Rental Property Ownership.

Quick Note: You can find the different documents mentioned just below on the Internal Revenue Service’s homepage: When you’re using tax prep software applications, the software will have the required documents.

Individual Ownership

This includes mutual ownership with a wife or husband, tenancy in common, or mutual tenancy with right of survivorship.

Form 1040. All individual people will need to use Form 1040, so this is the place you’ve got to get started. Your annual total rental property earnings or deficit subjected to tax will be found on line 17 in the first page of the Form 1040. Take note that as a landlord with leasing activity, you will not be able to take advantage of the shortened Forms 1040A or 1040-EZ.

Schedule E. Schedule E is one addendum of Form 1040. It actually has a variety of applications, yet the application that is related to your needs is reporting of rental property revenue and expenses. The one section of Schedule E that you must finish is the portion entitled “Part I”. There are a few relevant tips that you should keep in mind, which include: while reporting on a rental that you jointly own with anyone, other than your wife or husband, you only need to report the expenditures which you sustained and the profit you acquired. On top of that, do not forget that if you leased just for a portion of the entire year, or you are leasing a portion of your home, you will need to distribute costs relating to rental and non-rental purposes. For more information, take a look at Tax Deductible Rental Property Expenses, the article set that is included inside this Guide.

Form 4562. On line 18 of Schedule E, you’ll deduct the depreciation for your property, that you will employ Form 4562 to figure out. To get more tips, find the article entitled, Depreciation Expenses for Rental Property, which is included in this Guide.

Partnership/Corporate Ownership

For example a general or limited partnership, or S corporation.

Form 1065/1120-S. For people with a collaboration, you will need to use Form 1065, the form a partnership utilizes to report all of its business operations. An S corporation uses Form 1120-S to report its enterprise activities. Schedule K, line 2 of Form 1065 or 1120-S is where your net rental losses or revenue are reported (Schedule K is embedded inside those documents).

Form 8825. Form 8825 is made for partnerships and S corporations, yet functions just like Schedule E. It’s in essence a lot like Schedule E. Make certain that all profit and operating costs suffered by the corporation or partnership are included in their total amounts (these are going to be divided among each business partner or investor down the road).

Schedule K-1. This document reports the net leasing income or losses due to each partner or investor according to that business partner or shareholder’s ownership interest. Each partner gets her / his very own K-1 and should report the contents of that K-1 on his or her Form 1040, Schedule E, Part II.

Limited Liability Co-ownership

You may file like you’re an independent property owner as, for taxation requirements, a single-member LLC is actually a disregarded entity (look above). A multiple-member LLC has the option to be taxed either as a partnership or as an S corporation (see above).

Kent CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

  • Huddleston Tax Accountants / Huddleston Tax CPAs – Kirkland
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