Rental Income And Expenses

Question 1

Where are rental income and expenses typically reported?

Answer 1

Schedule E

Schedule C is used if substantial services are provided or if the rental is part of a trade or business.

Question 2

What is Schedule C used for in relation to rental properties?

Answer 2

Used if substantial services are provided or if the rental is part of a trade or business

Losses on Schedule C are not subject to passive activity limits, but income is subject to self-employment tax.

Question 3

Define rental property as a home based on personal use.

Answer 3

Used for personal purposes more than 14 days or 10% of the total days rented to others

This classification affects how rental income and expenses are reported.

Question 4

What are the reporting rules for rental property treated as a home?

Answer 4

Not a home: Report all rental income and deduct all expenses. Used as a home: Rented fewer than 15 days: Do not report rental income or deduct expenses; Rented 15 days or more: Include rental income and allocate expenses

Allocation is based on rental versus personal use.

Question 5

What constitutes rental income?

Answer 5

Payments received for the use of property, including:
* Advance Rent
* Security Deposits
* Tenant-Paid Expenses
* Property/Services

Advance rent is taxable in the year received, security deposits are taxable if retained or used as rent.

Question 6

List some deductible rental expenses.

Answer 6

• Advertising
• Cleaning
• Maintenance
• Utilities
• Insurance
• Taxes
• Interest
• Travel
• Depreciation

Residential property is depreciated over 27.5 years; non-residential property over 39 years.

Question 7

Differentiate between repairs and improvements in rental properties.

Answer 7

Repairs are deductible; improvements must be capitalized and depreciated

Examples: Repairs (repainting, fixing leaks) vs. Improvements (adding rooms, new roofing).

Question 8

What is the De Minimis Safe Harbor rule?

Answer 8

Expenses under $2,500 (or $5,000 with an applicable financial statement) can be deducted rather than capitalized

This rule simplifies accounting for small expenses.

Question 9

Are expenses for vacant properties deductible?

Answer 9

Yes, while the property is held for rent

This applies even if the property is not generating rental income.

Question 10

How is uncollected rent treated for tax purposes?

Answer 10

Only deductible under the accrual method, not the cash method

This means if the cash method is used, uncollected rent cannot be deducted.

Question 11

What are the limits on rental losses?

Answer 11

Limited by:
* At-Risk Rules
* Passive Activity Limits

Losses can only offset passive income unless exceptions apply.

Question 12

What qualifies someone as a Real Estate Professional for tax purposes?

Answer 12

More than half of work in real estate and at least 750 hours spent materially participating in the activity

This allows for losses to offset ordinary income.

Question 13

What is the Active Participation Exception?

Answer 13

Up to $25,000 of losses may offset non-passive income if the taxpayer actively participates

This exception phases out if MAGI exceeds $100,000 ($150,000 completely phased out).

Question 14

Fill in the blank: Rental property is treated as a home if used for personal purposes more than _______.

Answer 14

14 days or 10% of the total days rented to others.