What if I use the rental property for personal use?

[DavidJEnnen]

One of my partners is living in the rental property while doing maintenance on the property. They have stayed there for 150 days last years and no income was received from the property last year. What is the impact of this?

[tagteam]

If the partner is performing repairs and maintenance on a full time basis on any given day, then that day is not considered to be a day of personal use per Section 280A(d)(2).

The Secretary shall prescribe regulations with respect to the circumstances under which use of the unit for repairs and annual maintenance will not constitute personal use under this paragraph, except that if the taxpayer is engaged in repair and maintenance on a substantially full time basis for any day, such authority shall not allow the Secretary to treat a dwelling unit as being used for personal use by the taxpayer on such day merely because other individuals who are on the premises on such day are not so engaged.

[KathrynG3]

It depends. Assuming this is truly investment property and not personal-use property, then the fair rental days and personal use days should be reported as usual in the Rental Income section.

Pertaining to the 150 days you are asking about:

• Fair rental days can be used for any of the 150 days that were used full-time for repairs and maintenance. See this article for more information: What kinds of rental property expenses can I deduct?
• Otherwise, the rest of the 150 days will be personal use. This may allocate a portion of the related expenses as non-deductible.

A loss may be calculated based on the costs of repairs & maintenance since no income was earned for the year. However, this loss may be limited.

TurboTax summarizes these limitations here: 

Rentals are considered passive activities for most owners. There are rules that apply to passive activities that limit the losses you can take on your tax return.

Here are a few reasons why your losses may not be fully deductible:

* You do not actively manage your rental so losses are only allowed if there are profits from other passive activities.

* You do actively manage your rental so $25,000 in losses are allowed if your income is $100,000 or less.

* Your income is over $150,000. None of your real estate loss is allowed.

* Your income is over $100,000 and less than $150,000. Some of your loss is allowed and some of your loss is carried over to the future.

* You are filing Married Filing Separately (MFS) and you live with your spouse during the year. This reduces allowable losses to zero.

* You are filing Married Filing Separately (MFS) and you live apart from your spouse the entire year. Your allowable losses are reduced by 50% to $12,500

See IRS Topic No. 415 Renting Residential and Vacation Property for more details.