Taxpayer rents a portion of his house out and allocates a pro-rated portion of his mortgage and property taxes to the rental. The rest of his property tax and mortgage goes on schedule A with his itemized deductions. With the pro-rated mortgage and property tax included, the rental results in a net loss. But if you take out the mortgage and property tax allocation (which he would have reported in full on schedule A in the absence of the rental), the rental results in positive income. Does the IRS consider this rental to be profitable?
How does IRS decide if rental is a loss?
Mar 25, 2014
3 Replies
First reply
The IRS uses what you report on Schedule E that feeds Line 17 of the 1040. This should include an allocation of your qualified mortgage interest and real property taxes.
Read the full reply
The IRS uses what you report on Schedule E that feeds Line 17 of the
1040. This should include an allocation of your qualified mortgage interest and real property taxes.
Unless the "portion" constitutes a complete, separate dwelling unit, such a rental is probably subject to the IRC 280A so-called "vacation home" rules. As such, any loss in excess of interest and taxes would be limited to zero.
MTW
To put it another way.... You can't increase a loss or create a loss by deducting business use of your home except for expenses that would have been deductible on Schedule A: qualified mortgage interest, taxes, thefts and casualties. Any excess gets carried over to the next year.
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