A question about Vacation Home Rental Loss Limitation

[wleuter]

I saw this from the forum

You are not allowed to take losses on a rental property that has a mixture of personal and business use. 

if you use it for personal purposes more than the greater of:

• 14 days, or

• 10% of the total days it is rented to others at a fair rental price.

My questions is

Will the losses be carried over to the next year in this scenario?

If so, how TurboTax handle it?

If not, where will the losses go? Are they just ignored or will they be counted when selling the house?

Thanks!

[Mike9241]

assuming the answer to the 14day/10% of rental days question is yes.

there is a second question. "Was the property rented less than 15 days?" Any day rented to anyone at less than a fair rental price is considered a personal use day (not a rental day), Days rented to family members are personal use days unless fair rent is charged and it is their main home.

If you enter yes. the residence is a personal residence.  rental income and expenses are not reported. Mortgage interest and taxes go on schedule A if a qaulified residence. Each currently has a limit as to deductibility.

Will the losses be carried over to the next year in this scenario? NO they are permanently gone

Will they be counted when selling the house? no

If you answer no, then expenses will be prorated (Turbo tax will do the prorations) with certain rules. the rental portion of interest and taxes is not limited to rental income. other expenses are subject to ordering rules with carryover allowed. 

[wleuter]

@Mike9241 

Thanks for your answer.

My understanding is  when I rented the house for more than 15 days, I am not able to deduct any losses from the rental, right?

So if my expenses are more than my rental income, the losses will be carried over to the next year.

I want to know how TurboTax handle this carry over thing.

Will TurboTax save this losses somewhere and do the carry over for me when I use TurboTax again to file my tax return next year?

[tagteam]

I agree with @Mike9241 but note that when the property is used as a "residence" (personal use more than the greater of 14 days, or 10 percent of the number of days during year for which such unit is rented at a fair rental) expenses strictly attributable to rental use can actually transform a loss into a nonpassive loss.

[tagteam]

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@wleuter wrote:

Will TurboTax save this losses somewhere and do the carry over for me when I use TurboTax again to file my tax return next year?

---

If you rent for more than 15 days and your personal use is more than the greater of 14 days or 10% of the days rented at fair rental value, then losses attributable to expenses incurred strictly as a result of rental use are nonpassive. As such, any loss is not carried forward to the following tax year but is used to offset other types of income (or is disallowed completely, and not carried forward, if subject to the vacation home loss rules).

Again, expenses are allocated between rental use and personal use days (and expenses that are strictly rental expenses, such as advertising, management fees, commissions are allocated rental use exclusively while other, allocated, expenses may be subject to vacation home loss limitations).

[wleuter]

@tagteam 

Thanks for your answer!

I am not sure if my understanding is correct about "offset other types of income" part.

For this scenario, If I want to use standard deduction with Schedule E, the losses can not offset other types of income, right?

[tagteam]

@wleuter 

What do you mean by "use standard deduction with Schedule E"?

The standard deduction is completely separate and apart from your rental income and expenses.

You should see your net rental loss on Schedule 1 of your 1040 (if allowed as set forth above).

[wleuter]

@tagteam 

I thought that "offset other types of income" means I have to use itemized deduction. Thanks for your answer again.

Can you give me an example of other types of income for "offset other types of income"? Can it be any income?

Thank you!

[tagteam]

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@wleuter wrote:

Can it be any income?

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Yes, it can be any type of income (interest, dividends, salary/wages, et al) if the loss is nonpassive.

[wleuter]

@tagteam 

I also saw this from TurboTax help document when I use TurboTax Premiums to report my rental.

In example 2, why does it say the expenses would also be carried over? Is the scenario we were discussing different with example 2?

Thank you!

[tagteam]

@wleuter 

I will explain, but you simply need to input your information into TurboTax; the program, in most cases, will make the proper allocations and return the correct result.

The vacation home loss rules (Section 280A rules) treat losses differently depending, essentially, upon the level of personal use. If, for example, your personal use is less than the number of days required for the dwelling unit to be considered a residence (per Section 280A(d)), then any net loss will be passive and carried forward. 

[Critter-3]

I highly recommend you either read up on the vacation home rules in the IRS pub 527 chapter 5   or  seek out local professional guidance to help you better understand this situation.

https://www.irs.gov/pub/irs-pdf/p527.pdf