Private Use of Rental Property

The guidelines associated with the personal and leasing utilization of premises are included in this article in the Landlord’s Tax Guide. This may be either because you are leasing out a space in the same property which you are living in, or you have got a vacation residence that you might privately employ a few weeks out of the calendar year and rent the remainder of the time. This information will not apply to you at all if you never use your rental property for personal use. However, if you do, you will want to keep reading.

Property rented for less than fifteen days. Any time you leased your property for less than fifteen days total in the past year, you don’t have to file any of your rental revenue. If this is the scenario, then the real estate property is going to be considered personal for taxation considerations, and on Schedule A of Form 1040, it is possible to deduct any of the property associated expenditures as personal.

Employing Your Holiday Home as a Part Time Rental

Personal use test. It’s important to work with some type of numeric formula to determine the total number of days during which the rental property was used for personal use. That is the personal use test. How you deduct your rental expenses is going to largely be determined by whether or not the personal use test is satisfied. Finding out the actual quantity of days in the past year in which the real estate property was leased out at fair market value is the initial step in calculating the personal use test. The next step is to multiply that number of days by ten percent. We will label the outcome the “total days rented” or “TDR” for short. The next stage will be to figure out how many days the rental property was employed for private use. We can label this “personal use days” or “PUD” abbreviated. Look at the table below for a vision of the personal use test.

NOTE: “Personal use” consists of use by you, any other owners of the home and property, plus the families of all individuals who own the property, unless of course your family member is paying out rent at fair market value.

If TDR is…

and PUD is…

then the personal use test is…

over 14

less than TDR

not satisfied

under 14

less than 14

not satisfied

over 14

more than TDR


under 14

more than 14



If test is satisfied. If the personal use test is satisfied, you will deduct your rental expenses only to the extent of the rental income. A net rental loss will not be attainable, but when there are any additional expenditures you do not write off this year, they can be moved forward to later years, provided that there is an adequate sum of rental earnings in the tax year in which you claim them.

If test is not satisfied. Your own leasing costs will never be restricted by the rental income if the personal use test is not satisfied. You could deduct your rental costs and also have a net rental loss. There could be a few passive activity rules, however, which may still restrict the rental loss tax deduction.

Computing all of your rental expenditures. A number of expenses should be allocated between leasing and personal application. These include expenditures that will have already been charged no matter the use, such as real estate taxes and mortgage interest. Find out the whole number of personal use days. Then, you will need to determine the total quantity of TDR. After that, divide rental days by the sum of PUD and rental days. The end result is the rental percentage. Finally, you have to multiply the total cost of your expenses by the leasing percentage that you have established, and then the result will be the rental deductible part.

Leasing a Section of Your House

You need to expressly allot all your costs in between private usage and leasing use if you rent out a part of your own personal home. The IRS allows a little versatility with the method you employ; just make sure it’s consistent from year to year. Some people choose the option of taking the number of rooms within their residence along with the number of rooms within the home, and divide them. Dividing the rented sq . ft . by the residence’s total sq . ft . is another option that lots of people go for. You’ll end up with rental costs and personal costs. Those allotted to the leasing income can be deducted as such, and you can use Schedule A of Form 1040 to deduct what’s left.

Redmond CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

For more information on rental property deductions check out this video from Huddleston Tax CPAs:

Necessary Tax Documents Concerning Reporting Rental Income

The following brief article is focused on all the IRS tax documents you must have as a landlord to be able to fully record, and report, your rental revenues to the Internal Revenue Service. Based on the particular professional body which possesses the rental, the tax documents required vary, as laid out below (individual, partnership, corporation, or LLC). Look at the page titled Best Rental Property Ownership, provided in this Guide, for more information on the subject of legal entity ownership.

Quick Note: You will discover the various documents discussed in this article on the Internal Revenue Service’s website: The required documents will be found in any tax prep computer software, if you work with one.

Individual Ownership

Joint property ownership with a husband or wife, joint tenancy with right of survivorship, plus tenancy in common would be examples.

Form 1040. Initially, you will need Form 1040, the form used by all independent people. Your current total rental earnings or loss subjected to taxes are at line 17 of the very first page in Form 1040. You will not be permitted to take advantage of simplified Forms 1040A or 1040-EZ, as a good landlord with leasing activity.

Schedule E. Schedule E is one addendum to Form 1040. Of this addendum’s many different applications, just the application of reporting rental income and expenses is important to your needs. The one part of Schedule E that you have to fill out is the portion titled “Part I”. There are several essential tips you should remember, such as: if you happen to own the rental property mutually with someone other than your significant other, report only the profits that you received plus the expenditures that you sustained. Bear in mind, additionally, that you’ll have to allocate costs between rental and non-rental use should you be leasing a part of your personal home, or if you only leased for part of the entire year. Look at the series of articles called Tax Deductible Rental Property Expenses, included in this Guide, for additional info.

Form 4562. At line 18 of Schedule E, you can deduct the depreciation on the property, that you will use Form 4562 to figure out. Read the article entitled Depreciation Expenses for Rental Property, within this Guide, for further tips.

Partnership/Corporate Ownership

A general or limited partnership, or S corporation is an example.

Form 1065/1120-S. For people who have a collaboration, you have to utilize Form 1065, the tax form a partnership utilizes to report all its company activities. An S corporation employs Form 1120-S to report its enterprise activities. Your annual total rental revenue or deficit will be reported on Schedule K, line 2 of Form 1065 or 1120-S (Schedule K is embedded into the documents).

Form 8825. This form functions similar to Schedule E, but for partnerships and S corporations. Schedule E and Form 8852 are basically very much the same. Make sure to disclose whole sums of all revenue and costs sustained by the partnership or corporation (Down the road, these should be allotted to each investor or partner).

Schedule K-1. This tax document reports the net leasing income or financial loss owing to each partner or investor as outlined by that partner or shareholder’s property ownership interest. Each partner should get her / his own personal K-1 and should report the details of that K-1 on her / his Form 1040, Schedule E, Part II.

Limited Liability Company Ownership

You’ll be able to file like you were an independent owner as, for income tax uses, a single-member LLC is really a disregarded entity (see above). A multiple-member LLC has the option to be taxed as either a partnership or as an S corporation (see above).

Auburn CPA +John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

  • Huddleston Tax CPAs / Huddleston Tax CPAs – Redmond Accountants
    Certified Public Accountants Focused on Small Business
    40 Lake Bellevue Suite 100 / Bellevue, WA 98005
    (800) 376-1785

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve: Tukwila, SeaTac, Renton. We have a few meeting locations. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.