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Room rental and vacation home rules.

Technical topics regarding tax preparation.
#1
EZTAX  
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Sometimes it seems like few of us bother to try and follow all the rules.

Research has indicated that if a taxpayer rents out a room in their primary home, the vacation home rules apply and that no loss is allowed. IRS Publication on rentals is silent about this.

We use Ultra-tax software and have not found a way to make this work other than manually adjusting depreciation claimed to zero out the loss. Also seems like we need to track this on a spreadsheet for future use.

Do other's think my understanding is correct?

If it is, is there a better way to use my software to track this?

Thanks.
 

#2
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Expenses are limited to gross rent revenue. i.e. the rental cannot create a loss, even a passive one.

IIRC Drake calculates correctly and puts current year disallowed expenses on the carryforward schedule if you enter the fair rental days and personal use days.
 

#3
EZTAX  
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Thanks Man! So your software works if you put 365 days rented 365 days used and 35% rental percentage (for example)?
 

#4
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I've only done one and it's been a while, but I think so. Anyway, it doesn't help you as you use different software...
 

#5
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I don't think you have the property setup correctly in UltraTax. I've had several vacation rentals and UltraTax handles it just fine, including limiting the expenses to income. It then creates a carryover of expenses and depreciation.

I just put a few numbers in a test client and got the same results. There must be something not right in your setup.
 

#6
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Rent-1
Type = 3
Fair rental days = blank
Business use percentage = blank

Rent-2
Personal use percentage = xxx.xx (whatever your personal percentage is)

Asset:
Setup like a normal residential rental property
Go to setup -> activity
Go to -> vacation home percentage
enter 365 for days rented


This setup should get you the results you desire. I suppose the presentation of the E is a little weird as it indicates that it is a vacation/short-term rental rented for 365 days, but you can easily override those on the form screen if you want it to look different.



Enter full expense amounts in the entry screen - do not use the percentage column
 

#7
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"Research has indicated ..."

May I trouble you to indicate what research where, EZ? What is your source? Publication 527 says nothing of the kind and I am too lazy to chase it down.
Because on T.A. ten was the most you were allowed
 

#8
Nilodop  
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Hobby loss or, as IRS calls it, not for profit. Pub 527:
Not Rented for Profit
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 de- duct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.


Renting a room can be for profit.
 

#9
EZTAX  
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Nilodop - I was refering to the rules under 280A which is the section vacation homes fall under. I believe a home used both personally and as a rental falls under these restrictions.

According to the Big Book and a tax seminar I attended, if you are renting out a room in your home that does not have its own kitchen then you fall under the vacation home rules.
 

#10
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EZTAX wrote:According to the Big Book and a tax seminar I attended, if you are renting out a room in your home that does not have its own kitchen then you fall under the vacation home rules.


So let's put a hot plate, microwave, and smoke detector in that spare bedroom.
 

#11
Nilodop  
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Assume the person has a profit motive. Assume he rents out a room in his personal residence at FMV for 365 days (or, in 2020, 366). Tell us what limit you get. Hint - see section 280A(e). I don't think you need the stuff that causes fires.
 

#12
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The reason I replied was that I was pretty sure that EZTAX had it wrong but hey, I'm not too old to learn new things. I'm still sure that EZTAX has it wrong. As long as there is profit motive losses are allowable and if there is no profit motive it does not belong on a Schedule E.

And as far as 365 days at fair rental and also 365 days personal use that is frankly just stupid. Would a renter really let the landlord co-habitate with him or her? At any given time you have either rented rooms out as a business arrangement or else you (or a related party) used them. They are mutually exclusive.
Because on T.A. ten was the most you were allowed
 

#13
Nilodop  
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And as far as 365 days at fair rental and also 365 days personal use that is frankly just stupid.. Not what I said (or meant). Rent someone a room all year, exclusive to him. Allow him to use the nearby bathroom and kitchen not exclusively.
 

#14
EZTAX  
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Thanks for the thoughts. I am behind on the pile on my desk but will get back to this as soon as I can.
 

#15
EZTAX  
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#16
EZTAX  
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#17
EZTAX  
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IRS PUB 525 (I know pubs are not authority...)

Limit on deductions.

Renting a dwelling unit that is considered a home isn’t a passive activity. Instead, if your rental expenses are more than your rental income, some or all of the excess expenses can’t be used to offset income from other sources. The excess expenses that can’t be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Any expenses carried forward to the next year will be subject to any limits that apply for that year. This limitation will apply to expenses carried forward to another year even if you don’t use the property as your home for that subsequent year.
To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5-1.

and from the Big Book:

DEFINITION OF A “DWELLING UNIT”
For purposes of the vacation home rules, a dwelling unit is property that provides basic living accommodations,
including sleeping space, toilet, and cooking facilities. A single structure may contain more than one dwelling unit.
If a taxpayer rents rooms or other space in a home and the rented portion does not have facilities that would make it
a dwelling unit on its own, the taxpayer and the renter may be considered to be occupying one dwelling unit, and loss
on the rental may be disallowed under §280A. This does not apply to hotel or motel units, etc., regularly available for
occupancy by paying customers, but may apply to a portion of a home used to furnish lodging to tourists or to longterm
boarders, such as students. See more about “Room Rental” on page 3.18.04.

Nilodop- "Hint - see section 280A(e)" To be honest I just can't figure out what this means. To me it makes sense for a real vacation home (sort of) but not a room in ones primary home.

(e)Expenses attributable to rental
(1)In general
In any case where a taxpayer who is an individual or an S corporation uses a dwelling unit for personal purposes on any day during the taxable year (whether or not he is treated under this section as using such unit as a residence), the amount deductible under this chapter with respect to expenses attributable to the rental of the unit (or portion thereof) for the taxable year shall not exceed an amount which bears the same relationship to such expenses as the number of days during each year that the unit (or portion thereof) is rented at a fair rental bears to the total number of days during such year that the unit (or portion thereof) is used.

And now back to that pile on my desk!
 

#18
Nilodop  
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I think it means that you come up with a fraction based on the number of days rented during the year and apply it to the expenses to determine the fraction (percentage) deductible. 365/365 = 1, or 100%.
 

#19
EZTAX  
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That is how I read it. But if only 35% of the home is rented????

Also it seems the expenses must be limited so no loss unless it is created by the business percentage of mortgage interest and taxes.

It should not be so confusing/complicated to report roommate income which is so common. This is an area where the IRS and congress need to come in a truly simplify.
 

#20
Nilodop  
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"But if only 35% of the home is rented????" Then that's the percentage of expenses you apply 100% to.
 


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