Rented residental real estate used for personal purposes

Question

Does FreeTaxUSA handle the case where a rental property is also used for personal purposes? It is my understanding that income and losses from a rental unit that is also used for personal purposes more than 14 days aren't passive. Is this correct and does FreeTax handle it? I don't see a way to indicate that the rental is also used for personal purposes when filling out the tax return.

david_smith · Answer

Hi Keri,

Thanks for researching the issue. I will look at Pub 527 "Residential Rental Property".

David

KeriC · Answer

@David_Smith

I can see what you are referring to in Pub 925 where it says the following isn't a passive activity: "The rental of a dwelling unit that you also used for personal purposes during the year for more than the greater of 14 days or 10% of the number of days during the year that the home was rented at a fair rental."

In researching this further, the IRS means that this type of rental is treated differently, meaning you generally can’t deduct rental losses beyond rental income. If you personally use it for more than 14 days, the rental is not a passive activity under IRS rules. Your deductions will be limited to the amount of rental income earned but cannot be used to create a loss.

Pub 927 may be a better source under the "Used as a home and rented 15 days or more" section beginning on Page 28. It states, "If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. You don’t need to use Worksheet 5-1.

"However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. To figure your deductible rental expenses and any carryover to next year, use Worksheet 5-1."

david_smith · Answer

Thanks Keri for the response.

I understand the special allowance for active members. Under this allowance the loss is considered passive. However, Publication 925 seems to indicate that rentals that are used for personal use are not considered "passive rental real estate". That the income and losses should be considered nonpassive.

Am I incorrect in this understanding?