Homeowners who make their property available for rental can make some extra income in addition to being able to deduct certain expenses. However, owners should be careful to know that not meeting certain requirements of personal use may require owners to treat their residential property as a rental property for tax purposes.
There’s no place like Dwelling Unit
Tax parlance often refers to homes, apartments, condos, and similar residences as “dwelling units.” Your personal dwelling unit is considered your residence if you use it for personal purposes during the year for more than the greater of:
- 14 days OR
- 10% of the total days rented out to others for a fair rental price.
Personal purposes includes personal use by the owner or others (such as relatives) who own interest in the property. Fair rental price means generally the amount of rent a person not related to the taxpayer would be willing to pay for renting similar property in the area. It should be noted that days spent maintaining or repairing the property does not count towards the personal purposes portion of the test. Not meeting the criteria above means the property is considered a rental property and personal property deductions become unavailable.
Allot a lot of time
If your personal residence is used for both rental and personal purposes and meets the above criteria, you must divide your expenses between the allotted rental and personal use days. Rental expense deductions are limited to the gross rental income. Excess rental expenses may be carried forward to the following year. Additionally, some personal expenses related to the property may be deducted on your Schedule A form, such as mortgage interest and property tax expenses.
A special rule exists that if you rent out your personal residence for less than 15 days during the year, you do not need to report the rental income and do not deduct any related rental expenses.
Making your personal property available for rental can be a nice additional stream of income. However, the rules surrounding rental income and properties can quickly get complicated. Owners may face complex issues that require a pair of professional eyes to analyze. Well, “look” no further than us here at MiklosCPA. We are a California-based CPA firm that helps clients, often owners of small businesses in various industries. Give us a call to learn about how we can help you and your business! Also, don’t forget to check out our social media pages for assorted “good-to-know” tax tidbits!