Fair rental days on Schedule E

[cocoloco2]

I have a condo I rent out for @ 3 months/yr. In 2016, I stayed at the condo for 75 days, and rented it for 105 days. For the days in which it was not rented and when I did not live there, it was vacant (but was available to be rented). When filling out Schedule E of form 1040, do I enter "75" as the personal use days and "105" as the fair rental days?

[PaulaM · Accepted solution]

Yes. Personal use days means the days you used the property after it was placed in service (like a vacation property). Enter rented days as 105 and personal use days as 75.

Do not include the vacant (but available) days in either field box.

[MikePawson]

Here's a variation I haven't found an answer to - how do you treat days where it is rented under a lease (for a fair market rent) to a tenant who doesn't pay. For example, consider:

Tenant is under a lease for the full year.

Tenant pays rent for 6 months

In month 7, tenant pays a bit late with a bad check that takes a few days to bounce. Promises to promptly make it good and doesn't. Notice to vacate issued

Start of month 8, eviction filed; court date is at end of month 8. Tenant loses. On last day of move-out period files a pauper's appeal. Seven weeks pass until the appeal is heard (end of month 10). After losing, the tenant gets a week to move out, doesn't, and it takes the sheriffs 2 weeks to get to forcibly removing the tenant.

At this point, the tenant paid rent for 6 months. Occupied the house for another 4.5 months with the obligation to pay rent, but without actually doing so, and then let's suppose the repairs and make-ready take the balance of the year, during which time it is available for rent.

How do you report this on schedule E? 6 months (~180 days) of being rented at a fair value? or 10.5 months (~320 days) since that's how long a tenant was in there? I can't find clear guidance - it seems like if you say 180 then the IRS will wonder why it was empty for half a year, but if you say 320, they'll wonder why you brought in so little rent. I can't find a clear explanation of whether deadbeat tenant days count as rented or not.  Any guidance would be appreciated. Thanks!

[Critter]

Simple ... it was rented or rentable  the entire year at fair market value ... the fact that they stopped paying and it needed repairs is immaterial for this matter  and naturally reduces the income reported on the Sch E.   And the IRS expects variations in the occupancy rates so don't worry about that ... just keep good records if the return is ever audited. 

[Carl]

You're making things more complex than necessary. The "number of days rented" count starts on the first day a renter "COULD" have moved in. Period. End of story. Vacant periods between tenants counts also, *PROVIDED* that you did not live in the property for one single day for *PERSONAL* use. Consider the below scenario.

- You place the "for rent" sign in the front yard on Jan 1 of the tax year. You get a tenant who signs a 3 month contract on Feb 15th and moves in on March 1st. Tenant moves out at the end of the lease on Jun 30th.

Because you live 150 miles away you drive to the property and actually stay in the property for the entire week of July 1-7 it takes you to clean up and get the property ready for the next tenant. You're ready in a week and on July 8 you put the "for rent" sign in the front yard and go home.

On July 15th a new tenant signs a lease for 1 year and moves in on Aug 1st. They stay there for the full one year which covers the rest of the current tax year.

For tax purposes:

Your number of days rented is 365 days.

Your number of days of personal use is *ZERO*.

The week you stayed there was *NOT* for your personal use or pleasure. It was strictly business - to get the property ready for the next tenant.

Weather the tenants actually paid the rent or not is totally and completely irrelevant. That property was classified as business use for every single day of the tax year, and nothing else. Additionally, there was not one single day of that year where you used the property for your personal use or pleasure.

[danondik]

How are the fair days vs non fair days taxed differently? Is there an advantage one way or another?

[Carl]

 When you rent the property at below fair market rental value, your rental losses are limited to the amount of rental income, and excess losses are just "lost" permanently and forever. You're not allowed to claim them against "other" ordinary income and you can not carry them forward to the next year.  This scenario is most common when a landlord is renting to a family member or other related party.

[mcmatt75]

Carl-

Looking at this exact issue, and I like your answer, but can you cite a source? I am reading articles that state that all deductions are disallowed, not just a net loss.  Big difference.  I am really hoping you can point me to some positive news here. 

[AnnetteB6]

Take a look at IRS Publication 527 Residential Rental Property under the section for Not Rented For Profit.  It states the following:

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.

@mcmatt75