FAQ's >> Rental Property
Listed below are examples of frequent tax-related questions with corresponding answers. While many issues may seem straightforward, the
answers to many of these questions illustrate the complexity of the U.S. taxation system. For further assistance with these or any other tax
issues, please contact us.
Although the information provided herein is derived from data published by the Internal Revenue Service, it is not considered authoritative,
and should only be used as a general guide to understanding the underlying issues. Authoritative guidance should be obtained from a tax
professional or directly from the Internal Revenue Code, Regulations, Revenue Proclamations, Publications, Bulletins, Announcements, etc.
I received income for renting out my timeshare for a week. I understand that I don’t have to report income from any rental
less than 15 days, but the property management company reported that income to the IRS. Do I have to report it when I file?
If you use the dwelling unit as a home (based on degree of personal use) and you rent it for fewer than 15 days during the year, do not
include any of the rent in your income and do not deduct any of the renal expenses.
I am renting a house to my son and daughter-in-law. Can I claim rental expenses?
In general, if you receive income from the rental of a dwelling unit, such as a house, apartment, or duplex, there are certain expenses you
may deduct. Besides knowing which expenses may be deductible, it is important to understand potential limitations on the amounts of rental
expenses that may be deducted in a tax year. Whatever expenses you are allowed to deduct will reduce the amount of taxable rental income. For
example, if you have no significant personal use, but rent the dwelling unit to your son and daughter-in-law at less than fair market rental
value, then you may only deduct rental expenses up to the amount of actual rental income (received). If you do not have significant personal use
and rent to your son and daughter-in-law for more than 14 days per year, then the expenses will also be limited to the amount of rental income,
but the excess expenses may be “carried over” to a future year.
We are selling rental property and have never claimed depreciation. What do we do about this when we file our taxes?
When reporting the sale of or computing gain or loss on rental property, you are required to make an adjustment to your basis for
allowable depreciation regardless of whether the deduction was taken.
If you have unclaimed depreciation for two or more years, you may be eligible to file an Application for Change in Accounting Method to
claim the depreciation that should have been taken. The application must be timely filed for the same tax year in which you sell the rental
property or an earlier tax year.
Can I sell rental property and reinvest it into rental property without paying capital gains tax?
No. However, rental property may be exchanged directly for other rental property of like kind. Gain realized from such an exchange is
deferred.
Can we move into our rental property, live there as our main home for two years, and sell it without having to pay
capital gains tax?
You may be able to exclude your gain from the sale of your main home that you have also used for business or to produce rental income if
you meet the ownership and use tests.
However, if you were entitled to take depreciation deductions because you used your home for business purposes or as rental report, you
cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997.
