Case Study 2: Personal Use of Rental Property
Roger owns a condominium apartment in a resort area. He rented it at a fair rental price for a total of 170 days during the year. For 12 of those days, the tenant was not able to use the apartment and allowed Roger to use it even though he did not refund any of the rent. Roger's family actually used the apartment for 10 of those days. Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Roger figures 10% of the total days rented to others at a fair rental price is 16 days. Roger's family also used the apartment for 7 other days during the year.
Roger used the apartment as a home because he used it for personal purposes for 17 days. That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days).
Roger must allocate expenses related to personal use. In addition he is limited in the expenses that he can report on Schedule E.
If the taxpayer used the dwelling unit as a home and rented out the unit at least 15 days in the current tax year, the taxpayer may not be able to deduct all of the rental expenses. The taxpayer can deduct all of the following expenses for the rental part on Schedule E:
If there is rental income left after deducting these expenses, the taxpayer can deduct other expenses, including depreciation, up to the amount of remaining income. The taxpayer can carry over to the following tax year the unused expense amounts.