Publication 527 (2024) - Residential Rental Property

Introduction

• Discusses rental activities such as owning a secondary house or vacation home rented out.
• Covers differences in reporting income and deductible expenses for rental properties.

Section 1: Rental Income and Expenses

Rental Income

• Report all amounts received as rent.
• When to Report:
  • Cash Method: Report when received.
  • Accrual Method: Report when earned.
• Types of Income:
  • Advance rent, lease cancellation payments, tenant-paid expenses, property/services received as rent, security deposits.

Rental Expenses

• Deductible expenses include maintenance, insurance, taxes, interest.
• Personal Use: Expenses must be divided between rental and personal use.
• Types of Expenses:
  • Advertising, auto/travel, cleaning, commissions, depreciation, insurance, interest, legal fees, local transportation, management fees, mortgage interest, etc.

Section 2: Depreciation of Rental Property

• Depreciation is taken over the property's useful life.
• Eligible for Depreciation:
  • Owned property, used for income, has a useful life, expected to last more than 1 year.
• Depreciation Methods:
  • MACRS is commonly used.
  • Basis: Cost minus adjustments.
  • Depreciation Methods: Straight line, declining balance, etc.

Section 3: Reporting Rental Income, Expenses, and Losses

Forms

• Schedule E (Form 1040): Main form for reporting rental income/expenses.
• Form 4562: Required for depreciation.

Limits on Losses

• At-Risk Rules: Limit losses to amount at risk; form 6198 may be required.
• Passive Activity Limits: Generally limits losses unless offset by other passive income.

Section 4: Special Situations

Condominiums and Cooperatives

• Condo owners can deduct maintenance but not improvement assessments.
• Coop owners deduct maintenance fees and their share of property expenses.

Property Changed to Rental Use

• Divide expenses between personal and rental use.
• Basis for depreciation is lower of FMV or adjusted basis at conversion.

Section 5: Personal Use of Dwelling Unit

• Must divide expenses between personal and rental use.
• Dwelling Unit Used as Home:
  • Used as home if personal use is more than 14 days or 10% of rental days.
  • Special rules if rented less than 15 days.

Section 6: How to Get Tax Help

• Resources available at IRS.gov.
• Free Tax Preparation Options: VITA, TCE, MilTax.
• Online Tools: EITC Assistant, Tax Withholding Estimator.

Additional Resources

• Taxpayer Advocate Service (TAS): Helps resolve issues with IRS.
• Low Income Taxpayer Clinics (LITCs): Assist low-income individuals.

New Developments

• Mileage Rate for 2024: Increased to 67 cents/mile.
• Bonus Depreciation: Reduced from 80% to 60%.
• Section 179 Deduction: Up to $1,220,000, reduced by excess cost of property.

Reminders

• Commercial Clean Vehicle Credit: Businesses may qualify for tax credits.
• Net Investment Income Tax (NIIT): 3.8% tax on certain income above thresholds.

Table of Contents Highlights

• Form references and detailed instructions.
• Special situations and limits on deductions.
• Methods for allocating expenses and calculating depreciation.