calculating % of rental expense

[Izepa]

Individual is renting out portion of main home.

Would expense be calculated by the ratio of days rented / 365 ?

Or by the ratio of days offered for rent / 365 ?

Any ideas?

[mdavolio · Accepted solution]

Hi,

Here is a blurb from IRS Publicaiton 526: https://www.irs.gov/pub/irs-pdf/p527.pdf

If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. When dividing your expenses, follow these rules. • Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. (This rule doesn’t apply when determining whether you used the unit as a home.) • Any day that the unit is available for rent but not actually rented isn’t a day of rental use.

Thank you,

Mike D'Avolio

Intuit

[RETaxAcctBrk]

Your post indicates "a portion of the home" is being rented out.

This can make the allocation much more complicated.

Assuming that portion is rented out (or available to rent with no personal use), then the allocation is NOT neccessarily based on days but another reasonable method.

Part of the issue is allocating the expenses between personal and rental use.  If a portion of home rented is 2,000sqft and has 4 people, while the owner occupies 500sqft and is 1 person, you certainly do not want to use days.

That could include SqFt, # of People, or other reasonable method.

[LongBeachCPA]

There is another rule (used for vacation homes) - called the Bolton Rule.  Approved by Tax Court, and NOT in IRS publications. To make it work in Lacerte you must use a side computation to obtain the rental percentage, and enter it as an override. Lacerte follows the IRS publication for it computations. (I know, I sent in a query to Lacerte, and received this reply).

Good Luck.