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Old 02-26-2012, 01:49 PM
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Allocating rental income on shared second home

My sister and I own a condo together (50/50) in Mexico. It's a second home for both of us. We both use it for personal use but also rent it out. Every year we have a method that we use to determine who gets to use it for which months. Whoever gets to use the condo for the month decides how to use it (in other words, use it personally or rent it out). My sister rents out her months much more than I do. Do we allocate to each other for tax purposes only the rental incomes we each received or do we have to split the total rental income 50/50. In previous years I assumed we would identify the rental income for tax purposes by who received it but the tax form documentation seems to specify we need to split it 50/50. What is the right answer?



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Old 02-27-2012, 09:03 AM
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“My sister rents out her months much more than I do. Do we allocate to each other for tax purposes only the rental incomes we each received or do we have to split the total rental income 50/50.”---->I guess so. You need to file two Sch Es, ons Sch E for your return and another Sch E for your sister’s return.When you rent your vacation home in Mexico for less than 15 days during the year of 2011, then you do not report the rental income and not deduct any rental expenses. However, your portion of mortgage interest, r/e taxes, and casualty losses(if you have) may be deducted as itemized deductions on Sch A as long as you itemize it if not, you can’t deduct them on your return. If you rent your vacation home for more than 14 days during the year of 2011, you need to report your rental income on your return ( and your sister reports her portion of rental income on her return).Expenses related solely to rental activities(like ad, commissions) can be deducted against rental income. All other expenses must be allocated between rental and personal use. You can then deduct the rental portion of the expenses.However, when the vacation home is considered a residence, rental expenses are deductible only to the extent of rental income. Disallowed expenses carry over to offset rental income in future tax years.
“ In previous years I assumed we would identify the rental income for tax purposes by who received it but the tax form documentation seems to specify we need to split it 50/50. What is the right answer?”----->As described above, you need to for tax purposes(or even for personal financial purposes, I guess), to split your rental income/expenses(as far you and your sister agree/want) 50/50. Needless to say, you MUST report your portion of rental income/expenses on your return and so does your sister.



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Old 02-27-2012, 11:18 AM
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Thank you for the explanation. Unfortunately, I have not been doing it correctly in previous years since I only counted the revenue I actually received and days I rented versus stayed there. I will get it right for 2011. My sister will have to share some information with me. I'll have to consider amended returns. What a pain.



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