Renting Your Home IRS Tax Rules

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June 15, 2016
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Renting Your Home IRS Tax Rules

Renting Your Home IRS Tax Rules: Introduction

As it seems to be taking over a lot of the advertising you see during home shows, but more and more people are either renting out their homes or renting out their investment properties.  Now if you are one of the thousands of people looking to rent out their home, then you will need to know the Renting Your Home IRS Tax Rules.  When you have switched over from a homeowner to a landlord, the tax implications have also switched as well.  In the following paragraphs, you will see just exactly what has changed and how you can prepare for it.

Renting Your Home IRS Tax Rules: Deductible Expenses

Once you hae rented your house out for more than 14 days in a year, you can officially start to take on these expenses as deductible while making sure to follow Renting Your Home IRS Tax Rules.  First of all, if you are renting out your residence, you will have to claim all of your rental income and expenses on your IRS Schedule E.  What it comes down to is that you can deduct nearly all of the costs associated with renting, owning, and maintaining the property.  This list is pretty extensive and the following can be deducted due to Renting Your Home IRS Tax Rules: Mortgage Interest, Property Taxes, HOA Fees, Cleaning Costs, Repairs and Maintenance Costs, Management Fees, Utilities that you personally pay for, travel costs associated with making trips to the property, and finally depreciation of the property which we will discuss further in the following paragraph.

Your biggest deduction of all could be the depreciation of your home.  Now Renting Your Home IRS Tax Rules says that the home and NOT the land can be depreciated over 27.5 years.  If we look at the numbers, here is what you are going to find: If you paid $600,000 for the home and the land is deemed to be worth $100,000, you will subtract that from the purchase price leaving you with a $500,000 value to depreciate over 27.5 years.  Every year you rent out the home, you will be able to claim over $18,000 in depreciation expense EVERY year.

Renting Your Home IRS Tax Rules: Annual Net Loss

Given all the expense deductions you can take under Renting Your Home IRS Tax Rules, more years than not you are going to show a net loss on the yearly rental of the property.  Now is this a true loss?  No, since depreciation of the property is a large chunk of your expense and not a cash outlay, you really didn’t lose on the property.  Now for Renting Your Home IRS Tax Rules you can claim up to $25,000 annually in losses against your Modified Adjusted Gross Income or MAGI.  There are caps to the losses and they can be taken 100% of the MAGI is $100,000 or less, they are reduced up to $150,000 MAGI, and they are phased out if MAGI is about $150,000.  For example, if you have $15,000 in losses for the property and your MAGI is $80,000, your new MAGI is reduced to $65,000 thus reducing your tax owed to the IRS.

If you have a home you can rent out it is always a good idea to know the Renting Your Home IRS Tax Rules to ensure you prepare your taxes properly and ensure the IRS doesn’t audit you.  In these situations, the team here at Loan Consultants can assist you in going over this with a tax professional to ensure IRS compliance.

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