Where do I find out which method(irs vs tax court method) I used in previous years for my rental house?

[PatriciaV]

Yes, you can determine which method you used to allocate interest and taxes on a prior return by calculating the percentage that applies to your Rental Expense.

The Tax Court method uses the ratio of days rented divided by the number of days in the year.

The IRS method uses the ration of days rented divided by the total days used (rental days + personal days).

In the workpapers for your prior year return, look for Schedule E Worksheet for your Rental Property. Rental days and Days of personal use appear in the top section. Mortgage Interest appears on Line 12. Column (c) shows the allocation to your rental property; column (e) shows the allocation to personal use. 

Use the values from this worksheet to calculate the allocation using both methods to see which one you used last year.

[bigrodent]

Thanks for the helpful explanation.  Can you further explain in the TaxCourt method how the days that are neither actively rented nor used as personal get accounted for?

Are they considered rented if the property is open for rentals but didn't book? (Personal days % = personal days/365)
OR

Are they lumped into personal?   (Rented days % = days rented/365)

Thanks!

[peter941]

Unused days are the same as used days in the tax court method.  It usually results in lower rental expense but higher personal expense.  This is typically better if you itemize deductions.

To find which way you used previously you can also look for the Schedule E worksheet  and look for the line that says

"Check to allocate interest and taxes using the Tax Court Method"

and see if the checkbox is checked or not.

[kstepanick]

Can you flop back and forth between "IRS Method" and "Tax Court Method" from one year to the next based upon which scenario works better for you in that particular year?

[blattanzi111]

Hi -

For me, IRS method results in a greater deduction.  But what happens say, 5 years from now, when I sell... is depreciation recapture greater because of the greater savings here?

[KristinaK]

The IRS Method or the Tax Court Method are two methods used to determine the allocation of the mortgage interest and real estate taxes between Schedule E (for rental) and Schedule A (for itemized deduction). Depreciation doesn't directly come into play for those methods. 

If you have an unallowed/suspended loss (due to depreciation and/or other expenses), once you sell the property, those losses will be unsuspended and will reduce your income. The recapture of the depreciation is on the full amount of depreciation allowed or allowable. Whether you took it throughout the years or when the losses were unsuspended. 

See Pub. 527 for more information.