Name on mortgage

[BOB W]

Not Rented for Profit

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.

Where to report. Report your not-for-profit rental income on Form 1040, line 21. You can include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Form 1040, Schedule A, Itemized Deductions, if you itemize your deductions.

Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 22. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

So rental ( not for profit) is handled the same as a hobby not for profit? I also found in my readings that accrual is the method for reporting income with related parties, even with below market rentals.

__________________________________________________ _________________
Let's hope Brad gets into this discussion on Sunday and clears this up, one way or another.

[BOB W]

BOB W - Look up Sec. 183(c). Note that under Sec. 212 there is no such thing as a residential rental as not for profit. Personal property rental not for profit is different. Were not for profit applicable under Sec. 212, Jackson could have argued the rental was not for profit.

.YOU CAN NOT HAVE A "NOT FOR PROFIT" WHEN YOU HAVE A RELATIVE RENTING FROM YOU

Rental below fair market rental to anybody - not just relatives - is considered personal use by the owner. In short, renting a residence below fair market rent is considered personal use rather than not for profit.

Now I'm really confused>>>> 527 specifically talks about rental real estate> mortgages, taxes, and the like. I haven't reviewed Sec 183(c) yet but I will.

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I'm back. I could not find 183(c) but 183 just talks about the limitation of expenses to extent of income for all not for profit issues.

[skhyatt]

BOB W - Look up Sec. 183(c). Note that under Sec. 212 there is no such thing as a residential rental as not for profit. Personal property rental not for profit is different. Were not for profit applicable under Sec. 212, Jackson could have argued the rental was not for profit.

Rental below fair market rental to anybody - not just relatives - is considered personal use by the owner. In short, renting a residence below fair market rent is considered personal use rather than not for profit.

So based on your cite, rental income received on property that is considered personal use, would be reported on line 21 of form 1040 as described in pub. 527? That's the way I read it.

[solomon]

BOB W - Look up Sec. 183(c). Note that under Sec. 212 there is no such thing as a residential rental as not for profit. Personal property rental not for profit is different. Were not for profit applicable under Sec. 212, Jackson could have argued the rental was not for profit.

Rental below fair market rental to anybody - not just relatives - is considered personal use by the owner. In short, renting a residence below fair market rent is considered personal use rather than not for profit.

[BOB W]

No, they seem to deal with renting to a relative only and not dealing with "not for profit" which allows expenses to the extent of income. And in each case nothing is reported on Schedule E. Their paragraph says:

Use of a dwelling unit by any individual who pays less than fair rental value is considered personal use by the owner; therefore no expenses attributable to that period rental are deductible. Rental income must nevertheless be reported as income. [IRC §280A(d)(2)]

But this only applies to renting "Below FMV to a relative" and doesn't address the "not for profit" rental.

[skhyatt]

Bob W., I read through the section in pub 527 regarding "Not rented for profit". I haven't been able to find anything in TTB that talks specifically about this. Have you?

[BOB W]

says "unless it is used for personal purposes more than the greater of 14 days......" so if it is considered personal use because rented at less than FMV, I guess they could deduct mortgage interest on schedule A?

Yes that is the way I read it. Once you have a qualified full market value rental it no longer qualifies for Schedule A. Which is good if you have a third home with a mortgage.

[skhyatt]

says "unless it is used for personal purposes more than the greater of 14 days......" so if it is considered personal use because rented at less than FMV, I guess they could deduct mortgage interest on schedule A?

[BOB W]

I think TTB has it wrong because I took my info right out of the IRS pub which has a main catagory RENTAL PROPERTY NOT FOR PROFIT. Rental property "not for profit" is different than renting to a relative at below FMV. Although both situations fall under renting at below FMV.



I am digesting your question and will go back to 7-7

[skhyatt]

Bob W.

Also see TTB, 7-8. "Interest on Rental - Second Home?

I'm wondering, if they can't deduct the expenses because of the under FMV rule, would that still make it a "rental property" as talked about in the section above?

[BOB W]

This is talked about in TTB 7-7. Use of a dwelling unit by any individual who pays less than fair rental value is considered personal use by the owner; therefore no expenses attributable to that period rental are deductible. Rental income must nevertheless be reported as income. IRC 280A(d)(2).

Also talks about the court case that Solomon refers to on the same page.

Below FMV appears to fall under "Not for profit" but if rented to a relative at below FMV it is considered personal days.

[BOB W]

Solomon> I read the court case. So the difference between "not for profit rental" and "renting to a relative at Below FMV" is that renting to a relative at below FMV is considered personal use. Thus, there is no deduction for operaing expenses except for Mort & re taxes (on schedule A>>> Schedule E is not used at all in both cases. Rental income goes on line 21 for each situation.

I love to learn something new. Of course one ever learns unless one asks a question. I'm glad I asked.

Thanks Travis & Solomon.

Brad: I couldn't find this situation in the TTB, is it there and I missed it?

[skhyatt]

TheTaxBook 7-7

This is talked about in TTB 7-7. Use of a dwelling unit by any individual who pays less than fair rental value is considered personal use by the owner; therefore no expenses attributable to that period rental are deductible. Rental income must nevertheless be reported as income. IRC 280A(d)(2).

Also talks about the court case that Solomon refers to on the same page.

[solomon]

BOB W - Read the following court case regarding renting below fair market rental:

http://www.ustaxcourt.gov/InOpHistoric/JACKSON1abc.TCM.WPD.pdf

[BOB W]

I did a little research and could not find how to handle a "below fmv rental to a relative".

But I did find this:

Not Rented for Profit

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.

Where to report. Report your not-for-profit rental income on Form 1040, line 21. You can include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Form 1040, Schedule A, Itemized Deductions, if you itemize your deductions.

Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 22. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

So rental ( not for profit) is handled the same as a hobby not for profit? I also found in my readings that accrual is the method for reporting income with related parties, even with below market rentals.