Fair Rental

[NotEasy]

I have a client who rented his rental property below market for 6 months to a friend. But then the other 6 months had been rented to another tenant at fair market rate.

I use Drake as my tax program

I entered 182 as Fair Rental Days in Schedule E and 183 as Personal Use Days in Schedule E. Then I entered all the income and the expense figures.

For some reason, Drake only allows rental expense up to the rental income in Schedule E. I understand it would be the case if the property had been rented below market for the whole year. But since half of the year had been rented at fair market rate, should the taxpayer be eligible for the rental loss in that period?

[Gary2]

The personal-use test is 10% of the number of days rented at fair market value. Thus this example is subject to the vacation home rule, unless it qualifies as a property changed to or from a main home.

[taxea]

I would show it rented for the total year. The <FMV income goes on the Sch E. The mortgage interest and property tax are allocated by % of days/year to the Sch E and Sch A.

The FMV rent, again, on the Sch E and the FMV expenses on to Sch E, the prop tax/mortgage interesst allocated by % items go on Sch E