A tax question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

A tax question

Post by jtelwood »

RE: Form 1040 Schedule E

This form was changed for 2011. On line 2, what is the definition of 'fair rental days'. I did not find the instructions to be clear. Any assistance would be appreciated.

j elwood
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: A tax question

Post by jebmke »

from the instructions
For each property listed on line 1, report the number of days in the year each property was rented at fair rental value and the number of days of personal use.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

Re: A tax question

Post by jtelwood »

My situation - the house is available to rent for 14 weeks in the year. It is closed the remainder of the time. I do not use it for personal use. Am I allowed to FULLY deduct the normal rental deductions ie. repairs, taxes, insurance, cleaning, etc. for the entire year or must I prorate them for the time the house was on the market to rent?

Again, thanks for the help.

j elwood
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: A tax question

Post by jebmke »

jtelwood wrote:My situation - the house is available to rent for 14 weeks in the year. It is closed the remainder of the time. I do not use it for personal use. Am I allowed to FULLY deduct the normal rental deductions ie. repairs, taxes, insurance, cleaning, etc. for the entire year or must I prorate them for the time the house was on the market to rent?

Again, thanks for the help.

j elwood
I believe the answer is yes. If you are not using it personally. There are limitations on losses (passive loss limitations -- I haven't looked at this in a while) but that isn't your question. If I read the instructions correctly, you can attribute the expenses to the rental income as long as there was no personal use. The classic example might be a condo in a ski village. It might get closed up during non ski season but there are some ongoing expenses to maintain the asset as a productive rental.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

A tax question

Post by jtelwood »

Last question - I hope.

What would go in the box 'fair rental days'?

- Would it be the number of days the house was rented?

- Or, the number of days that the house was on the market, which would include the days it was rented?

Thanks again for your help.

j elwood
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: A tax question

Post by sscritic »

Have you read pub 527?
If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose.
When dividing your expenses, follow these rules.
• Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. (This rule does not apply when determining whether you used the unit as a home.)
Any day that the unit is available for rent but not actually rented is not a day of rental use.
The example on page 23 of the pdf version is pretty complete.

Now maybe day of rental use and fair rental day are different concepts, but I don't see it.

Expenses are divided between days of personal use and days of rental use, so you typically don't have 365 days in a year. Again, see the example.
earlyout
Posts: 1542
Joined: Tue Feb 20, 2007 4:24 pm

Re: A tax question

Post by earlyout »

Have you posted your question on the Fairmark Forum? There are very knowledgeable tax people on that forum and they are usually quick to respond.

EO
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: A tax question

Post by sscritic »

earlyout wrote:Have you posted your question on the Fairmark Forum? There are very knowledgeable tax people on that forum and they are usually quick to respond.

EO
That's a good answer, but illustrates one of two different philosophies: 1) ask and if you don't get a good answer, ask somewhere else and 2) why not read the publications the IRS gives you for free to see if you can find the answer. I like the second. :)
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

Re: A tax question

Post by jtelwood »

Actually, I have read it and was unable to find the answer that addressed my specific case. That is why I sent the original email and follow-up.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: A tax question

Post by sscritic »

I believe the distinction between a rental day, a day on which the property was rented out, and a fair rental day, a day on which the property was rented out at fair market value, is just that. A fair rental day has to be rented at the market price, not below, to a relative, say.

The form:
For each rental real estate property listed, report the number of days rented at fair rental value and days with personal use.
This is in Part I, item 2, just to the left of the "Fair Rental Days" box. Note the word "fair" in the instructions printed on the form and the word "fair" in the box heading. I believe them to be the same.

I thought that was your question, but perhaps I am missing what you are missing.

Note: a search for "fair rental day" in the pdf of pub 527 yields only three hits, all on the Schedule E. A search for "fair rental price" produces 39 matches, one of which is
A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area.
I would think that the words "fair rental value" on the Schedule and "fair rental price" in pub 527 are meant to have the same meaning.

If I understand correctly, your question is about proration. There are three types of days: days rented at fair market value, days not rented or rented at less than fair market value, and days of personal use. The instructions give you the formula to use. In your case, if the numbers are 98, 267, and 0, then plug these numbers into the formulas given.

Again, I may be missing what your question really is, but this is what I see when I read pub 527.
User avatar
HueyLD
Posts: 9789
Joined: Mon Jan 14, 2008 9:30 am

Re: A tax question

Post by HueyLD »

jtelwood wrote:My situation - the house is available to rent for 14 weeks in the year. It is closed the remainder of the time. I do not use it for personal use. Am I allowed to FULLY deduct the normal rental deductions ie. repairs, taxes, insurance, cleaning, etc. for the entire year or must I prorate them for the time the house was on the market to rent?
Yes.
jtelwood wrote:What would go in the box 'fair rental days'?
If you didn't personally use the property at all, the question in Sch. E Box 2 is not applicable and you should leave it blank. In other words, you shouldn't have to even worry about the number of fair rental days or number of personal use days. You can deduct all normal expenses for the entire year.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: A tax question

Post by sscritic »

HueyLD wrote: You can deduct all normal expenses for the entire year.
And that is the answer you would get if you plugged in 98, 267, and 0. :)
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

Re: A tax question

Post by jtelwood »

Thanks for the information and your patience. I think I understand, but to review a last time -

My situation. I have a vacation rental property. I ONLY make it available to rent during June, July, and August (it was rented for 92 days in 2011). It is off the market and unavailable to rent the other 9 months. I DO NOT use the property for personal use, I am only there to prepare it for the rental season and close it down at the end of the season.

- Line 2 ,leave blocks for fair rental days and personal use days blank. To convey to the IRS that I didn't just over-look line 2, I'm assuming that I could put 92 days in the fair rental days block and 0 in the personal use day. I think this would be consistent with the example on page 15 of pub 527 - yes?

- Deductions.

- Even though the property was unavaialbe for rent for 9 months, since I did not use the property for any personal use during the year, I can fully deduct all expenses (lines 5-19) - yes?

- Line 6, auto and travel. The IRS makes a distinction between local transportation expenses (commuting) and travel expenses. I am presently living in England and return to the property 2 times a year. Am I correct to assume that I can fully deduct the cost of the airline ticket and mileage (car) from the airport to the rental property - yes?

Again, thanks for your patience and assistance.

j elwood
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: A tax question

Post by sscritic »

I think the example on page 22 of the pdf covers this. It specifically treats a cottage that is rented out only during "season."
Your beach cottage was available for rent from June 1 through August 31 (92 days). Your family used the cottage during the last 2 weeks in May (14 days). You were unable to find a renter for the first week in August (7 days). The person who rented the cottage for July allowed you to use it over a weekend (2 days) without any reduction in or refund of rent. The cottage was not used at all before May 17 or after August 31.
You figure the part of the cottage expenses to treat as rental expenses as follows.
• The cottage was used for rental a total of 85 days (92 − 7). The days it was available for rent but not rented (7 days) are not days of rental use. The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend.
• You used the cottage for personal purposes for 14 days (the last 2 weeks in May).
• The total use of the cottage was 99 days (14 days personal use + 85 days rental use).
• Your rental expenses are 85/99 (86%) of the cottage expenses.
In your case, rental days is 92. Personal use days is 0. You add 92 and 0 to get 92 (compare to 99 days = 14 + 85 in the example). Your fraction is 92/92 = 100%. So yes, all your expenses are deductible.

I don't know about travel, and I have never had personal use days the limited time that I had a rental property, but I like to read IRS publications.





Petra
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

Re: A tax question

Post by jtelwood »

Thanks for taking the time to asist me with these questions
Topic Author
jtelwood
Posts: 191
Joined: Wed Jun 11, 2008 9:45 am

Re: A tax question

Post by jtelwood »

Thanks for taking the time to assist me with these questions.

j elwood
Post Reply