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Old 12-30-2008, 06:27 PM
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Rental Income - Below Market Value

Hi,

I have read a definition for "Personal use" of a residential dwelling, as including situations where the house is rented for well below market value.

In this case of "personal use," would I then be able to write off the interest expense on this home, and call it a "second home?"

Thanks for your replies.



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Old 01-04-2009, 04:59 PM
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According to the IRS, whenever a taxpayer takes out a mortgage to buy, construct or substantially improve a second home, the interest is deductible if that taxpayer chooses to itemize his or her deductions.

But, the taxpayers deduction may be limited if the mortgage exceeds the fair market value of the home or if the mortgages on the main home and the second home exceed $1 million ($500,000 if you're Married Filing Separately). Thus, you would be allowed to write-off the mortgage interest on this 2nd home provided the combined mortgage of the 1st and 2nd home does not exceed $1,000,000.

Now, the IRS has also stated that "if you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home."

The IRS requires the taxpayer to use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer, for the home to be considered as a qualified home.

If the taxpayer does not satisfy this requirement, than the taxpayer is not considered to have used the home long enough, and the residence would be considered a rental property and not a second home. The consequences of this would be that mortgage interest deduction would be reported as a part of the rental property expenses as reported on Schedule E. These rental property deductions would be limited to the taxpayers AGI limitations and rules governing the passive loss limitations pertaining to rental property.

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Old 01-14-2009, 12:54 AM
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Please take into account the "under market value" context.

The way I understand "personal use," and "under market value" is that if I am renting considerably below market value, that it is considered "for personal use" and therefore not considered to be rented. Therefore it is a second home "for personal use," and the 14 day living requirement does not apply.

Please confirm, or state where the logic does not apply to the existing law.


Last edited by jsimons_2000 : 01-29-2009 at 04:53 PM.


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Old 02-10-2009, 12:19 PM
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Can anyone help me out here?



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