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Old 02-19-2013, 11:20 PM
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Join Date: Feb 2013
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Tax Issues for Sabbatical Year rental of home

Hi -

I have gone on sabbatical from my job as a professor and rented out my house while I'm gone. As I understand it, my mortgage interest is to be used as an expense on the rental for the portion of the year I was away, while the portion of my mortgage interest applicable to the time I was living in my home is what I can deduct in my itemized deductions. Is this a correct understanding? My mortgage interest statement from my bank makes no distinction, of course, and gives simply the full 12 month amount. That fact doesn't change what I can and cannot itemize, correct?

False numbers here, but just to see if I'm getting this correct:

Mortgage interest paid to bank, per their 1098: $12000

Months in residence of home: 5
Months home occupied by tenants: 7
Months in residence out of state: 7
Rent paid by tenants: $8000

In my schedule E form, then, I believe I should have an entry for $8000 paid by the tenants in rent as rent income, and $7000 in expenses, the 7/12 of the $12000 paid by me in mortgage interest.

Thus my net rental income - expenses, assuming I had no maintenance costs, etc., would be $1000.

Then in my itemized deductions, I should deduct not $12000, but $12000 less the $7000, that is, the $5000 of mortgage interest that should be allocated to the time we were actually living in our home.

Is this correct?

Thanks,

Todd



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Old 02-20-2013, 01:07 AM
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Posts: 2,678
“As I understand it, my mortgage interest is to be used as an expense on the rental for the portion of the year I was away, while the portion of my mortgage interest applicable to the time I was living in my home is what I can deduct in my itemized deductions. Is this a correct understanding? “=======>In general correct; If you use a dwelling as a home and rent it for fewer than 15 days during the tax year, do not report any of the rental income on your tax return and do not deduct any expenses as rental expenses on your tax return. In this case, however, you may sill be able to deduct mortgage interest, property tax, and casualty losses as itemized tax deductions on Form 1040, Sch A. So as long as you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving or maintaining the property while the property is vacant. However, you cannot deduct any loss of rental income for the period the property is vacant. However, if you also use the dwelling unit as a home, certain restrictions apply to the tax deduction of your rental expenses on your tax return. You are considered to use a dwelling unit as a home if you use it for personal purposes during the tax year for more than the greater of: 14 days; or
10% of the total days it is rented to others at a fair rental price. Then, as you use the dwelling unit for both rental income and personal purposes, you generally must divide your total expenses on your tax return between the rental income use and the personal use based on the number of days used for each purpose. Unless your gross rental income is more than your expenses of rental use, you may not be able to deduct all your expenses of rental income use on your tax return. You need to report rental related revenue/exp on sch E and mort int and r/e taxes for personal use on Sch A; So UNLESS you itemize your deductions on Sch A of 1040 you can’t deduct your exp of personal use .Please visit the IRS Website here: Tax Topics - Topic 415 Renting Residential and Vacation Property

“My mortgage interest statement from my bank makes no distinction, of course, and gives simply the full 12 month amount. That fact doesn't change what I can and cannot itemize, correct?”-================>No; as said previously, you need to allocate your mort int exp for both personal and rental use.

False numbers here, but just to see if I'm getting this correct:

“Mortgage interest paid to bank, per their 1098: $12000

Months in residence of home: 5
Months home occupied by tenants: 7
Months in residence out of state: 7
Rent paid by tenants: $8000”============>The on SCh E you need to report $8K; as you used it for personal purposes during the tax year for more than the greater of: 14 days; or 10% of the total days it is rented to others at a fair rental price,

“In my schedule E form, then, I believe I should have an entry for $8000 paid by the tenants in rent as rent income, and $7000 in expenses, the 7/12 of the $12000 paid by me in mortgage interest. “============>Correct; as the residence is rented for 15 days or more and is used for personal purposes for more than 14 days or 10% of the days rented, whichever is greater, allocable rent exp are allowed only to the extent of rental income on Sch E; allocable rental exp are deducted in three separate steps;1) interest/ taxes are dedcuiterd;2)utilities and maint exp are deducted thirds depreciation exp is deducted.

“Thus my net rental income - expenses, assuming I had no maintenance costs, etc., would be $1000.

Then in my itemized deductions, I should deduct not $12000, but $12000 less the $7000, that is, the $5000 of mortgage interest that should be allocated to the time we were actually living in our home.

Is this correct?”======>Here is a simple example; assume you rent your home for $2500 for 20 days and use it for personal use for 60 days;sicn eth ehome is rented for more than 14 days(or 10% of the days rented if greater),the pty is subject to vacatin home limiatations; your personal use % is 75%;60/80 and the rental portion s 25%;20/80. The IR Srequires that rental income/loss be calculated as following:gross rental----------->$2500
Less int and taxes (assume total int and taxes is $5700)=------------> 25%*$5700=$1425
Bal---------------------->$1075($2500-$1425)

Less util and maint($2100)------------$525(25%*$2100)
Bal----------------->$550($1075-$525)
Net income ------->$0
Less depreciation($3000)============>$550, NOT $750(25%*3000) the depre exp deduction is LIMITED to the bal of $550.



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