Income Tax-Personal Rental Property Flashcards
(18 cards)
What is the 14-day rule for rental property?
If a property is rented for fewer than 15 days during the year, treat it as personal use only. Rental income is not taxable, rental expenses are not deductible, and mortgage interest/property taxes are fully deductible on Schedule A (subject to SALT limit)
When must expenses be apportioned between personal and rental use?
When the property is used for both rental and personal purposes and is rented for at least 15 days, expenses must be allocated based on days of each use
What is the SALT limit for property taxes on Schedule A?
The state and local tax (SALT) deduction, including property taxes, is limited to $10,000 on Schedule A
What is the $25,000 rental loss exception?
For “rental use” properties (not mixed use), up to $25,000 of rental losses may be deducted against ordinary income if AGI is $100,000 or less. The exception phases out between $100,000 and $150,000 AGI
How is a property classified as personal use, mixed use, or rental use?
Personal Use: Rented <15 days/year.
Mixed Use: Personal use > greater of 14 days or 10% of rental days.
Rental Use: Personal use ≤ 14 days or 10% of rental days.
What is the tax treatment for a mixed-use property?
Rental income is taxable; expenses must be apportioned. Rental expenses can only offset rental income (no loss allowed). Excess expenses are carried forward. Personal portion of mortgage interest and property taxes is deductible on Schedule A (subject to SALT limit)
What is the tax treatment for a rental-use property?
Rental income is taxable. Allocated expenses may be deducted, and rental losses up to $25,000 may be deductible (subject to AGI limits). Personal portion of mortgage interest and property taxes is deductible on Schedule A (subject to SALT limit)
What is the tax treatment for a personal-use property?
Rental income is not reported. Rental expenses are not deductible. Mortgage interest and property taxes are fully deductible on Schedule A (subject to SALT limit)
What is the first step in determining the tax treatment of a vacation or rental property?
Ask: “Was the property rented out for fewer than 15 days during the year?” If yes, treat as personal use. If no, determine if it is mixed use or rental use based on personal use days
How are mortgage interest and property taxes handled for mixed-use and rental-use properties?
The personal portion is deductible on Schedule A (subject to SALT limit and acquisition debt rules, up to two properties)
Can rental expenses create a deductible loss for mixed-use properties?
No, rental expenses can only offset rental income; excess is carried forward to future years
What happens if personal use exceeds the greater of 14 days or 10% of rental days?
The property is classified as mixed use, and rental expenses are limited to rental income
Are other personal expenses (besides mortgage interest and property taxes) deductible for mixed-use or rental-use properties?
No, only the personal portion of mortgage interest and property taxes is deductible on Schedule A; other personal expenses are not deductible
What is the order of deduction for rental expenses on a mixed-use property?
- Mortgage interest and property taxes, 2. Operating expenses, 3. Depreciation. Each category is only deductible to the extent of rental income.
What is the general rule for carrying forward excess expenses on a mixed-use property?
Excess rental expenses not deducted in the current year may be carried forward to offset future rental income
Sarah owns a vacation home in Park City, UT. She uses it for 30 days each year and rents it out for 12 days during the Sundance Film Festival, earning $8,000 in rent.
How is the rental income and expenses treated for tax purposes?
Income: Not reported (rented <15 days).
Expenses: Rental expenses not deductible.
Mortgage interest & property taxes: 100% deductible on Schedule A (subject to SALT limit).
Scenario:
Mike owns a beach house. He rents it out for 200 days and uses it personally for 10 days. His AGI is $90,000. The property generates $30,000 in rental income and $40,000 in expenses (apportioned to rental use).
How much of the rental loss can Mike deduct?
Income: $30,000 taxable.
Expenses: $40,000 deductible (apportioned).
Loss: $10,000 rental loss. Mike can deduct the full $10,000 (within the $25,000 limit, and his AGI is below $100,000).
Mortgage interest & property taxes: Personal portion deductible on Schedule A (subject to SALT limit).
Lisa owns a mountain cabin. She rents it for 90 days and uses it personally for 20 days. Her AGI is $120,000. The property generates $12,000 in rental income and $15,000 in expenses (apportioned to rental use).
How is the rental loss treated?
Personal use: 20 days > 10% of 90 rental days (9 days) and > 14 days, so this is mixed use.
Income: $12,000 taxable.
Expenses: Can deduct up to $12,000 of apportioned rental expenses (no loss allowed).
Excess expenses: $3,000 not deductible, carried forward.
Mortgage interest & property taxes: Personal portion deductible on Schedule A (subject to SALT limit).
