rental not-for-profit vs. personal use

True

True and you need to add you rent it to another owner or family member of the other owner, unless it is that person's main main home and they pay FRV.

This is governed by Sec. 183. Reg 1.183-2 goes into detail as to what is a not for profit activity. Objective facts gets greater weight than intent. There are 9 relevant factors listed to make the determination.

Completely disagree. It's a rental that has personal use (deductions limited to income) or it's a rental without personal use (passive activity rules apply) or it's a not for profit activity that puts income on Line 21 and the deductions limited to income on Schedule A.

There is a tipping point. I'm not sure where that point is when it comes to a family member. I would say you get real close to that point when a profit motive enters the picture or it is your intent to obtain FRV from the family member.

What I was trying to get at here was that since renting below fair rental value constitutes personal use *by definition*, it seems that definition would supercede and preclude any determination of whether or not there was a profit motive.

If so, then determining (lack of) profit motive must be based on something other than simply renting below fair rental value. Hence my example of renting at fair rental value, but not taking steps to maximize occupancy, evict delinquent tenants, etc.

By contrast, if I have a trade or business where I charge significantly less for my product or service than the market rate, there is no automatic determination of anything, but it would strongly indicate that I have a not-for-profit activity aka hobby.

See also my next comment...

Again, based on Pub 527 ch. 5, if you rent below fair rental value all year, then all 365 days of the year are considered days of personal use. The pub says you have to divide your expenses between rental use and personal use. So if the rental is 100% personal use (based on renting continuously at below fair rental value), then you have no rental use at all (0%), therefore no expenses end up in the "rental" column, they all end up the "personal" column. Even my software treats it this way (while complaining that days of rental use are less than 15).

What am I missing? It does seem bizarre to me that a rental at below fair rental value ends up being considered 100% personal use even if you never set foot in the property, which is what prompted this post.

Taken to the extreme, if you have 365 days (100%) personal use and zero days (0%) rental use, you might even fall under the "less than 15 days rental use" rule, and have to report neither income nor expenses.

To clarify, I should have said, "a situation of 100% personal use"...

As a general rule, I believe reporting the income if any on line 21 Form

1040, and the expenses limited to income on Schedule A, would not be questioned. And I realize that IRS pubs are not authoritative. Still, they are the IRS' interpretation of statute for the ordinary taxpayer. In this case I think they have some serious logic flaws in the way anything other than a pure for-profit rental is treated.

-Mark B.

Note that Section 183 applies to trade or business activities (Sec

162). For most individuals with just 1 or 2 properties, rental activity is covered by Section 212 and Section 183 is inapplicable.

You need to read 183.

(c) Activity not engaged in for profit defined For purposes of this section, the term ?activity not engaged in for profit? means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.

I completely forgot that Sec. 280A specifically treats days at less than FRV as personal use days and effectively turns the property into your home. I agree with you that if during the year you only have days of no rent or rent at less than FRV, you have a home that has no available tax deductions other than the second home mortgage interest and real property tax deductions on Schedule A. The less than 15 days of rental income exclusion rule would apply as it deals with renting your home. It doesn't matter whether the rent is at or below FRV.

Therefore, it seems to me that the issue of Sec. 183, not for profit activity, can only come up when you have days in the year that are categorized as rental days. If you could show that it is a for profit activity, you get your Schedule E deductions. Otherwise you have Line 21 income and Schedule A deductions limited by the Sec 183 rules.