Loss on rental property disallowed

[JRB1221]

We had (16,962) in loss on a home we own that we rent below market value to our son/family. Major part of loss was $10,000 expense on new driveway.  Losses disallowed on Sch E because our income is over $150,000.  Can we claim the mortgage interest deduction and property tax payments on another part of our taxes?

[ColeenD3]

If you are renting below market value, you do not have a rental property. You have a not-for-profit rental. You can deduct your mortgage interest and property taxes on Schedule A. The driveway is an asset and that amount is added to the basis of the home.

Not Rented for Profit

If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

Where to report.

 Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8. If you itemize your deductions, include your mortgage interest and mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A.

[JRB1221]

Thank you. In order to qualify as 2nd home, how many days/nights do we need to spend there? Our son/family live in home, but we lived there while they were on vacation to care for plants, dogs, etc.

[ErnieS0]

You may be confusing second home and vacation home rules.

There is no minimum nights for a second home. You can deduct mortgage interest and property taxes as itemized deductions for two homes. You would still report any rental income (and your would not be able to claim mortgage interest or property tax against that rental income because you are deducting it elsewhere).

For a vacation home, you don’t have to report rental income if you use a dwelling unit as a residence and rent it for fewer than 15 days.

There are other rules you can find at Topic No. 415 Renting Residential and Vacation Property

TurboTax will divide the rental and personal portion of your deductions based on the number of days of personal use and the total number of days rented in the rental income section.

[JRB1221]

Facts. We paid $4,744 in interest on loan and $1,473 in property tax. Son/family rent for $800/month on property that would easily command $1,400/month. We paid $9,887 for new driveway. About $1,500 for other items, including plumber repair. What I'm hearing is I claim the rent as "Misc Income" on Schedule 1 of 1040. I can claim the taxes and mortgage interest on Schedule A. The driveway replacement gets added to basis of house.  I rented for 11 months ($8,800) and paid $6,217 combined in RE taxes and Interest. Net result as I see it is that owning this home, having mortgage and insurance, and renting as "non profit rent" seems like it actually costs me money on taxes.  When I included the rent as income and included the deductions on such A, my refund decreased.  Sound logical?

[ColeenD3]

Yes. That is how a not-for-profit works. In order to treat this as a rental, you will need to charge your family the same amount of rent the market will allow. You need to charge the same amount you would charge anyone if you were in it for  production of income.