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.

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has been 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.

Tax Deductible Rental Property Expenses: Insurance, Cleaning/Maintenance, and Repairs

You should ascertain that all professional services and fees are arranged adequately and accurately reported for the objectives of taxation conformity, now that you’ve decided to rent out your property for income. Why don’t we talk about a few of these expenses.


As with most insurance premiums, it’s usually pre-paid upfront for a particular amount of time. An illustration here would be: you obtained insurance protection with this particular rental property on March 2012 for $1200. April 2012 to March 31, 2013 is the coverage period of this plan. Since the insurance coverage time period does exceed the present tax year, you must identify the payments applicable to this current tax year only and then bring forward the balance for the upcoming reporting year. With this illustration the allowed insurance premium tax deduction may be $900 (9 months April to Dec 2012) or $100 per month of qualified rental use.

Keep in mind that many Insurance companies regularly combine insurance premium packages among business and personal customers at a discount rate. Just the company rental property pertinent part may be deducted. You need to use your individual tax return to write off any non-business or personal utilization. Finally, Title Insurance is not applied as an expenditure and should be included in the Cost Basis of the rental property.

Cleaning and Maintenance

When it is used on daily cleaning and upkeep of common places, then day to day maintenance of the rental property is an allowed expense. These kinds of expenses are limited to the days which have been tax deductible rental property hours but not personal use days. To make certain the property is in great condition and running order, you can do what many other property owners do, and engage a local contracted company to maintain your property. These services will provide a number of professional services like common repairs, dusting, window washing, and appliance cleaning. Only these types of services are permitted, any kind of structural maintenance and modifications must be allotted to the Cost Basis of the property.


There are frequently projects that do not require serious reconstruction of the structure of the rental property like painting or appliance maintenance. In accordance with the leasing duration, you can deduct such required and ordinary costs.

Do not include any time periods which will be considered to be individual use times, since expenses are only allowable in relation to the income of the rental property. The only costs that are authorized are those which are associated with the authorized leasing timeframe, specifically.

You can obtain the various forms outlined in this information on the IRS’s webpage. Refer to IRS Publication 527 for more information.

Seattle 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.

Deductible Motor and Transport Business Expenses from Rental Premises

When the specific transportation costs of your own private vehicles or another automobile are considered ordinary, necessary, and meet a number of other criteria, they can be allowed for deduction. Various expenditures you may be allowed to deduct are the expenses of driving an automobile to receive rental payments and also to help maintain the state of your property’s premises. Given that commuting to work is seen as a private expense, it is not permitted for deduction. Also, you can’t deduct the cost of traveling from your personal property or elsewhere to make improvements to your rental property. A cost recovery process like depreciation will usually cover such costs.

Actual Expenses

With this solution, you will report expenses pertaining to your travel away from home connected with the leasing residence. IRS Publication 463, Chapter 5 stipulates the way all these business expenses must be recorded and supported are with invoices and receipts. A few software apps can be found from iPod, Quick Books, Mint, as well as others which will help you record this information; nevertheless, you still must have a real document to back up the write offs. You have to report these costs either on a Schedule C or Schedule E along with all subsequent supporting forms. Your expenses need to be allotted to each residence where costs were incurred, if you own more than one property. Remember not to include personal use costs or any other sort of travel costs apart from those connected with the property.

Mileage Method

Here you will deduct your actual mileage driven. As an example, if you drove twelve hundred miles in 2012, you would use the latest standard mileage tax rate of $0.55.5 per mile and deduct the total.

You should have records to help support costs of local transportation such as motor vehicle rental, metro bus service, and Zip Cars which may only be declared when these costs are directly associated with the real-estate you own. In order to show your public transit use is entirely business linked, it is strongly suggested that you keep your different fare cards and tickets. To show these costs are directly related to business, it is also a good idea to allocate Zip Cars and car rental costs to business accounts.

Quick Note: You can obtain the different documents outlined in this information on the IRS’s webpage. For additional information on rental property ownership, be sure to consult IRS Publication 527.

Seattle 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.

Tax Forms that Are Needed for Reporting Leasing Income

The following short article is focused on all the Internal Revenue Service tax documents you require as a landlord to be able to thoroughly account for, and report, your rental property profits to the Revenue Service. Based on the particular official entity which manages the rental property, the tax forms called for are different, as detailed directly below (individual, partnership, corporation, or LLC). Read the page called Best Rental Property Ownership, included in this Guide, for additional information concerning legal entity property ownership.

TIP: You can locate the different forms outlined below on the Internal Revenue Service’s website: Each of the needed forms are likely to be provided in any tax preparing software applications, if you’re using one of them.

Individual Ownership

Joint ownership with a husband or wife, mutual tenancy with rights of survivorship, plus tenancy in common will be examples.

Form 1040. All independent tax payers need to fill out Form 1040, which is exactly where you should begin. At line 17 of the first page of Form 1040 is your total rental property profit or deficit, subjected to taxation. You won’t be permitted to use any simple Forms 1040A or 1040-EZ, as a law abiding property manager with rental property activity.

Schedule E. The addendum to Form 1040 you have to learn about is Schedule E. Of its assorted functions, the usage of reporting rental profit and expenditures is applicable to yourself. The element of Schedule E entitled as “Part 1” will be the single portion you need to fill out. A couple of important tips to be aware of: when reporting on the rental property that you mutually own with a person, other than your wife or husband, you will only have to report the expenditures you incurred and also the revenue you earned. Try to remember, additionally, that you will need to distribute expenses concerning rental and non-rental purposes should you be leasing a portion of your personal house, or whenever you only leased for a part of the year. Find the collection of articles entitled Tax Deductible Rental Property Expenses, contained within this Guide, for further advice.

Form 4562. On line 18 of Schedule E, you can deduct the depreciation of your property, which you need to employ Form 4562 to work out. For further info, view the article called, Depreciation Expenses for Rental Property, which is available in this Guide.

Partnership/Corporate Ownership

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

Form 1065/1120-S. When you have a partnership, you have to utilize Form 1065, the tax form a joint venture utilizes to report each of its organization operations. An S corporation employs Form 1120-S to report its company activities. Schedule K, line 2 of Form 1065 or 1120-S is where the net leasing financial loss or profits are reported (These documents are incorporated with Schedule K).

Form 8825. Form 8825 is designed for partnerships and S corporations, yet works similar to Schedule E. Schedule E and Form 8852 are in essence similar. Make sure that all revenue and costs sustained by the corporation or partnership are provided in their entire amounts (In the future, these are going to be allocated to each shareholder or partner).

Schedule K-1. The total rental property income or financial loss due to each shareholder or partner is reported by this tax document, in accordance with the rental property ownership interest of the investor or partner. Every business partner should get his or her own personal K-1 and will have to report the details of their K-1 on her or his Form 1040, Schedule E, Part II.

LLC Ownership

A single owner limited liability company is a disregarded entity for taxation objectives, meaning you could file like you’re an individual owner (look above). A multiple-member LLC has the option to be taxed as a partnership or as an S corporation (notice above).

Huddleston 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.

The Home Office Deduction for Landlords

The Internal revenue service claims that home office deductions are no more likely to encourage an audit than any other tax deductions, Still many taxes payers are leery of this deduction. The solution is: stick to the rules and you should have nothing to fear.

To claim this deduction you must be active (beyond depositing monthly checks). If you consistently spend a substantial amount of time maintaining and preparing properties, you’ll likely fit the term “active”.

So if you qualify as an active rental property owner, the next requirement is that the home office space is used exclusively for managing your rental business.

In addition, you must meet at least one of the following requirements:

1. Your home office is used as your principle place of business.

2. You have no other fixed location where you perform administrative and management activities.

3. This office space also serves as meeting location for clients.

4. You use some other structure on your property to conduct business.

After you have applied the threshold tests above and determined that the work area in your home does in fact qualify for the home office deduction, you’ll have to look into what kind of expenses are tax deductible. There are direct and indirect types. Direct expenses solely benefit the home office area of your home, expenses such as cleaning or painting. Indirect expenses benefit the entire structure and must be apportioned out between the home office space and the rest of the house. Property tax, insurance, mortgage interest, and utilities are examples of indirect expenses. Square footage is the standard way of calculating the proportion of the home office in relation to the entire house to come up with a percentage. A 2,000 square foot home with a 200 square foot home office area would mean 10% of the indirect expenses could be deducted as part of the home office deduction. You can also depreciate the house structure (not the value of the land) in the same percentage over 40 years. However, this may complicate matters if the house is sold.

And you will want to ensure that you are keeping diligent records in case there is an audit. You will need to be able to prove that you were entitled to any deductions. A diagram and/or a photo will support your claim of square-footage ratios. It is wise to have your home office address listed on business cards, letter heads, or other forms of professional communication. And when using your home office to meet clients, it is wise to keep a log to keep track of meetings. You should keep relevant expense statements, such as property tax statements, insurance premium notices, mortgage interest statements, utility bills, and other pertinent expense statements.

This is a basic guide to home office deductions. This is not a substitute for the expert counsel of a Seattle Accountant.

Seattle 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.


Part 1: Tax Deducible Rental Property Expenses

There are many deductible expenses connected to owning a rental property. In this article we will focus on expenses regarding professional fees, interest, and advertising, these are expenses you might deduct from your gross rental income so as to calculate your net rental income.


If you’re renting a room in your home, or if it is a duplex and you’re occupying the other unit, you will need to pro rate the mortgage expense. (See the article titled Personal Use of Rental Property, included in this guide, for more on how to calculate personal use). Now if you are renting the property as its own living unit, you can deduct all of the mortgage interest you paid on Schedule E. Also, if you own only a part interest in the rental, you must multiply the total amount of mortgage interest paid on the property by your ownership interest. Be aware, however, that certain expenses you pay to obtain a mortgage (such as title/recording fees and commissions) are capitalized as part of your depreciable basis for the property, and are not expensed. See the article titled Depreciation Expenses for Rental Property, included in this Guide, for more on depreciation expense. Other types of interest may also be deductible, if you incurred the interest solely for the benefit of the rental property.


Fees you incur to promote your rental property and list it on the open market are deductible. For example, ads that you pay for in the local newspaper, or any Internet advertising you pay for, are deductible.

Professional fees

You can deduct professional fees incurred in connection with the rental. For example, if you paid a lawyer to write a lease, or even to initiate court proceedings to evict an errant tenant, you can deduct these fees. Also, you’ll be able to deduct charges paid to a Seattle Tax CPA or preparing the Schedule E of your return from the previous year. Be sure to pro rate the total preparation fee between the Schedule E and the remainder of your return based upon the percentage of time the respective sections of the return took. Any fees for the preparation of any section of the return separate from Schedule E must go on Schedule A as a individual tax preparing expense. And, when you pay any management fees or commissions to a realtor for overseeing your rental, then you will want to deduct those expenditures likewise.

Seattle Accountant has written numerous accounting and tax related articles for small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

Deduction of Startup Expenses

This section examines deductible startup expenses for rental properties. You are able to deduct certain expenses you incur while preparing your property for rental, but before renting the rental property.

NOTE: These startup expenses we will look at here in this post are not the same type of expenses allowed as a deduction under section 195 of Internal Revenue Code. Within this section 195, particular expenses incurred as startup expenditures of an active trade or business are deductible up front up to $5,000, with a balance amortizable over a fifteen-year period. However, in this section 195 of the Internal Revenue Code, rental activity is not included because rental activity is thought to be a passive activity not as an active trade or business. See the article Tax Deductible Rental Losses, included in this Guide, for a more focused study of passive activity rules.

Note: It isn’t when you’ve actually rented real estate that rental activity starts, but when you’ve made the property available for rent or you have it out on the market.

The Expenses of Obtaining a Mortgage

Abstract fees, recording fees, and mortgage fees (amongst others) are capitalized and thus become part of your basis in the rental. Instead of expensing these fees all at once, you need to depreciate the expenses. The article Depreciation Expenses for Rental Properties has further information relating to depreciation.


“Points” are charges paid by a borrower to take out a loan or a mortgage. This points or charges may also be called origination fees, or premium charges, or maximum loan charges. Points are essentially prepaid interest. Thus, they are deductible as interest, but you cannot deduct the full amount at once. Rather, you must amortize the points over the life of the loan. Determining the amount of points to amortize per year, is task beyond the scope of this article. Make an appointment with a certified public accountant.

Repairs vs. Improvements

You must depreciate and capitalize all improvements to the property prior to putting the property on the market. Improvements prolong the use of the property or materially increase the property’s market value. On the other hand, you may freely deduct all repair expenses. A repair aims to keep your property in good working condition, not to increase the market value or prolong use. Within the Landlord’s Tax Guide there is more on deductions and depreciation, you would like to read further.

Tax CPA has written many articles on accounting and other tax related issues that pertain to small businesses. He is a graduate of the University of Washington School of Law.

Rental Property Ownership

This Introductory article of the Landlord’s Tax Guide (Guide) discusses the types of entities for the ownership of rental properties. Below, you’ll see the different entities have their disadvantages and advantages. However, the aim in each case is to limit your liability and safety-guard your real estate from unsecured creditors.

When establishing an entity, you will have to visit Washington State Entity Registration to register.

Note: This landlord tax guide wont serve to replace the expert council of a certified public accountant or tax attorney. You should seek qualified professional help when establishing an entity and transferring ownership of a rental property.

Individual Ownership

This is the most common and the most straight forward form of ownership and occurs when you purchase a rental property in your name. This includes owning the property with your spouse, or as joint tenants or tenants in common with someone else. The big benefit is that this is straightforward, and does not require the filing of any complicated paperwork or pay any lofty filing fees. The main disadvantage to this kind of ownership is that your creditors might be able to force a sale of the rental property if they receive a court order against you, or force you into involuntary bankruptcy.

Legal Entity Ownership

Legal entities include general partnerships, limited partnerships, limited liability companies, and corporations. The differences between these entities are important. We’ll outline them below. The main advantage to entity ownership is that your personal creditors are not able to force a sale of the rental, since you do not own it. The general partnership is the only type of entity that does not require registration with the Secretary of State. With regards to taxes, the entity type chosen does not matter a whole lot because in most cases, income from the rental property “passes through” from the entity and is taxed on your personal tax return (but do note the cautionary note under corporations). Cover the article titled Necessary Tax Forms for Reporting Rental Activity, which is included in this tax guide for landlords, for more on precisely how rental income is taxed.

General partnership. A partnership is an association of two or more people who carry on as co-owners of a business for profit. In a general partnership, each partner will have equal management rights, but is personally liable for the debts of the partnership. Thus, a general partnership is generally not recommended.

Limited partnership. This entity is more complex than the general partnership because it requires at least one limited partner and one general partner. The general partner has sole management rights, together with personal liability for any resultant debts. Whereas, the limited partner isn’t personally liable for debts of the partnership and then again has no management rights. This entity selection is generally not recommended.

Limited liability partnership/company (LLPs or LLCs). A limited liability partnership and a limited liability company are fairly similar entity types, both providing for limited liability to the partners/members. This would mean that you are not personally liable for the entity’s debts, that is unless the debt is due to your own wrongdoing. This mode of ownership is usually preferable because of limited liability plus there are fewer formalities to observe than with corporations.

Corporations. Corporations permit perpetual existence and limited liability. However, they demand the observance of specific formalities in order to keep the limited liability protection. Without these formalities, a court mandate may “pierce the corporate veil” and hold you personally culpable. For this reason, LLCs and LLPs are often more desirable for your purposes. Furthermore, for tax purposes, corporations are split into s-corporations and c-corporations. If a corporation is taxed as a “C” corporation, it will pay tax on the rental income, and then you will pay tax once again when the corporation pays you dividends. And you should avoid this “double taxation” trap.

CPA has written extensively on taxes and accounting. He is a graduate of the University of Washington’s School of Law, with a Juris Doctorate and a Masters in Tax Law.

Tax Write-Offs: A Guide for the Pet Lover

In the month of July of 2009, Representative Thaddeus McCotter unveiled the Humanity and Pets Partnered Through the Years (or HAPPY Act) bill. The HAPPY Act pushed for allowing a tax deduction up to 3,500 in each year for pet-related costs. The current status of this bill at the date of this article: “Referred to House Committee on Ways and Means.” It appears that this just isn’t the top priority , you could possibly have a divergent view on that.

So what sort of animal- and pet-related costs are eligible for tax deduction?
Our pets are dear to us pet owners. Some of us might think our family pet worth its weight in gold). But, pet-related expenses are, in some circumstances, eligible for tax write-offs. For instance, when relocating, a pet owner can file for a tax write-off specifically for the expenditures borne by moving a family pet, in tax law under these conditions, a pet could be viewed as a personal effect, and therein Spot or Mittens is treated likewise.

Also a business may very well be permitted to write off for the costs of having a guard dog. Or a volunteer host of a therapy animal, like a guide dog, may well be able to deduct vet bills and expenses, and other like unreimbursed expenses (these types of expenses can be considered charitable donations). There have similarily been court room rulings which have favored tax write-offs for costs associated with the keeping of animals serving the visually-, physically-,and hearing-impaired individuals. And there are additionally tax write-offs in expenses related to keeping animals considered part of an animal-breeding enterprise.

Van Dunsen vs Commissioner — The Cat Lady Case
Van Dusen cohabitated with about 70 cats (seven of which she counted as personal pets). She volunteered for a charitable organization (named “Fix our Ferals”) with the focus of neutering wild cats. This volunteer deducted twelve-thousand dollars on her return. The Irs argued that the woman was rescuing cats of her own volition rather than as a volunteer of a charity. The court denied this pitch. The court agreed with the IRS, however, that some of the expenses (such as State Bar Dues and Costco membership dues) wouldn’t constitute exclusively charitable expenses.

Finally, all individual expenses exceeding $250 were disallowed considering that Ms. Van Dusen failed to present corresponding required verification for such charitable donations (that is to say, a contemporaneous or simultaneous verification from the donee organization.) For the deduction to be allowed, the donee must file a return with the IRS reporting the corresponding info that would be included in the written acknowledgment, such as: 1) the amount contributed; 2) a description and good-faith estimate of any services or goods received in exchange; and 3) if the donee provides any intangible, immaterial benefits, a statement of such). If you want to write off the expenses for your seventy cats, be certain you are acting on the behalf of an adequate charitable organization and make sure you have the required documentation.

How do I differentiate between tax deductable and non-tax deductable animal or pet care-related expenses?
So you see there are potentialities for tax deductions for the expenses incurred by care of animals. And there are conditions when these expenditures are non-tax deductable. If you are making plans for a tax deduction related to the expenses of looking after animals, seek the counsel of a CPA (certified public accountant). Do not expect that just because your neighbor owns twenty cats, she is able to offer you with educated pet-related tax deduction counsel.

In one unusual illustration, a landscaper and gardener attempted to deduct for the expenses of attending to a dog which assisted him in pulling a cart on the job, presumably without the advice of a tax accountant. This granted the lawn specialist an audit. You might assume this precipitated working-relations strain, however we cannot confirm this notion. Nor is it likely that either the boss or dog will speak on the record anytime soon.

  • Huddleston Tax CPAs / Huddleston Tax CPAs – Seattle CPA Firm
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