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Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8 Draft Ok to Print AH XSL/XML Fileid: … tions/P527/2020/A/XML/Cycle03/source (Init. & Date) _______ Page 1 of 27 10:37 - 29-Jan-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Publication 527 Cat. No. 15052W Contents What’s New .................. 1 Department of the Residential Reminders ................... 2 Treasury Internal Introduction .................. 2 Revenue Rental Service Chapter 1. Rental Income and Expenses (If No Personal Use Property of Dwelling) ............... 2 Rental Income .............. 2 (Including Rental of Rental Expenses ............. 3 Chapter 2. Depreciation of Vacation Homes) Rental Property ............. 5 The Basics ................ 6 Special Depreciation Allowance .... 8 MACRS Depreciation .......... 8 For use in preparing Claiming the Correct Amount of Depreciation ............ 12 Returns Chapter 3. Reporting Rental 2020 Income, Expenses, and Losses ................. 12 Which Forms To Use ......... 12 Limits on Rental Losses ........ 12 At-Risk Rules ........... 13 Passive Activity Limits ...... 13 Casualties and Thefts ......... 14 Example ................. 14 Chapter 4. Special Situations ...... 14 Condominiums ............. 15 Cooperatives .............. 15 Property Changed to Rental Use ... 15 Renting Part of Property ........ 16 Not Rented for Profit .......... 16 Example—Property Changed to Rental Use ............. 16 Chapter 5. Personal Use of Dwelling Unit (Including Vacation Home) ............ 17 Dividing Expenses ........... 17 Dwelling Unit Used as a Home .... 18 Reporting Income and Deductions ............. 19 Worksheet 5-1. Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home ................ 20 Chapter 6. How To Get Tax Help .... 23 Index ..................... 26 Future Developments For the latest information about developments related to Pub. 527, such as legislation enacted after it was published, go to IRS.gov/Pub527. Get forms and other information faster and easier at: What’s New • IRS.gov (English) • IRS.gov/Korean (한국어) Excess business loss limitation. The excess • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) business loss limitation under section 461(l) has • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) been retroactively repealed and will not apply for 2020. Jan 29, 2021 Page 2 of 27 Fileid: … tions/P527/2020/A/XML/Cycle03/source 10:37 - 29-Jan-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Tax-free exchange of rental property oc- Form (and Instructions) casionally used for personal purposes. If 4562 4562 Depreciation and Amortization Reminders you meet certain qualifying use standards, you Net Investment Income Tax (NIIT). You may may qualify for a tax-free exchange (a like-kind 5213 5213 Election To Postpone Determination be subject to the NIIT. NIIT is a 3.8% tax on the or section 1031 exchange) of one piece of as To Whether the Presumption lesser of net investment income or the excess rental property you own for a similar piece of Applies That an Activity Is Engaged of modified adjusted gross income (MAGI) over rental property, even if you have used the rental in for Profit property for personal purposes. the threshold amount. Net investment income 8582 8582 Passive Activity Loss Limitations may include rental income and other income For information on the qualifying use stand- Schedule E (Form 1040) Supplemental from passive activities. Use Form 8960 to figure ards, see Revenue Procedure 2008-16, Schedule E (Form 1040) Income and Loss this tax. For more information on NIIT, go to 2008-10 I.R.B. 547, available at IRS.gov/irb/ IRS.gov/NIIT. 2008-10_IRB#RP-2008-16. For more informa- Photographs of missing children. The Inter- tion on like-kind exchanges, see chapter 1 of nal Revenue Service is a proud partner with the Pub. 544. National Center for Missing & Exploited Comments and suggestions. We welcome Children®(NCMEC). Photographs of missing your comments about this publication and sug- children selected by the Center may appear in gestions for future editions. this publication on pages that would otherwise 1. be blank. You can help bring these children You can send us comments through home by looking at the photographs and calling IRS.gov/FormComments. Or, you can write to 800-THE-LOST (800-843-5678) if you recog- the Internal Revenue Service, Tax Forms and Rental Income nize a child. Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Although we can’t respond individually to and Expenses (If Introduction each comment received, we do appreciate your feedback and will consider your comments and Do you own a second house that you rent out suggestions as we revise our tax forms, instruc- No Personal Use all the time? Do you own a vacation home that tions, and publications. Do not send tax ques- you rent out when you or your family isn't using tions, tax returns, or payments to the above ad- it? dress. of Dwelling) These are two common types of residential rental activities discussed in this publication. In Getting answers to your tax questions. This chapter discusses the various types of most cases, all rental income must be reported If you have a tax question not answered by this rental income and expenses for a residential on your tax return, but there are differences in publication or the How To Get Tax Help section rental activity with no personal use of the dwell- the expenses you are allowed to deduct and in at the end of this publication, go to the IRS In- ing. Generally, each year you will report all in- the way the rental activity is reported on your re- teractive Tax Assistant page at IRS.gov/ come and deduct all out-of-pocket expenses in turn. Help/ITA where you can find topics by using the full. The deduction to recover the cost of your Chapter 1 discusses rental-for-profit activity search feature or viewing the categories listed. rental property—depreciation—is taken over a in which there is no personal use of the prop- prescribed number of years, and is discussed in erty. It examines some common types of rental Getting tax forms, instructions, and pub- chapter 2. income and when each is reported, as well as lications. Visit IRS.gov/Forms to download some common types of expenses and which current and prior-year forms, instructions, and If your rental income is from property are deductible. publications. ! you also use personally or rent to Chapter 2 discusses depreciation as it ap- CAUTION someone at less than a fair rental price, Ordering tax forms, instructions, and first read chapter 5. plies to your rental real estate activity—what publications. Go to IRS.gov/OrderForms to property can be depreciated and how much it order current forms, instructions, and publica- can be depreciated. tions; call 800-829-3676 to order prior-year Chapter 3 covers the reporting of your rental forms and instructions. The IRS will process Rental Income income and deductions, including casualties your order for forms and publications as soon and thefts, limitations on losses, and claiming as possible. Do not resubmit requests you’ve In most cases, you must include in your gross the correct amount of depreciation. already sent us. You can get forms and publica- income all amounts you receive as rent. Rental Chapter 4 discusses special rental situa- tions faster online. income is any payment you receive for the use tions. These include condominiums, coopera- or occupation of property. It isn’t limited to tives, property changed to rental use, renting Useful Items amounts you receive as normal rental pay- only part of your property, and a not-for-profit ments. rental activity. You may want to see: Chapter 5 discusses the rules for rental in- come and expenses when there is also per- Publication When To Report sonal use of the dwelling unit, such as a vaca- tion home. 463 463 Travel, Gift, and Car Expenses When you report rental income on your tax re- Finally, chapter 6 explains how to get tax turn generally depends on whether you are a 523 523 Selling Your Home help from the IRS. cash or an accrual basis taxpayer. Most individ- 534 534 Depreciating Property Placed in ual taxpayers use the cash method. Sale or exchange of rental property. For in- Service Before 1987 formation on how to figure and report any gain Cash method. You are a cash basis taxpayer or loss from the sale, exchange, or other dispo- 535 535 Business Expenses if you report income on your return in the year sition of your rental property, see Pub. 544. you actually or constructively receive it, regard- 544 544 Sales and Other Dispositions of Assets less of when it was earned. You constructively Sale of main home used as rental prop- receive income when it is made available to erty. For information on how to figure and re- 547 547 Casualties, Disasters, and Thefts you, for example, by being credited to your port any gain or loss from the sale or other dis- bank account. position of your main home that you also used 551 551 Basis of Assets as rental property, see Pub. 523. Accrual method. If you are an accrual basis 925 925 Passive Activity and At-Risk Rules taxpayer, you generally report income when 946 946 How To Depreciate Property you earn it, rather than when you receive it. You Page 2 Chapter 1 Rental Income and Expenses (If No Personal Use of Dwelling) Page 3 of 27 Fileid: … tions/P527/2020/A/XML/Cycle03/source 10:37 - 29-Jan-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. generally deduct your expenses when you incur can deduct that same amount as a rental ex- If you use the accrual method, see Pub.
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