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Extension 5. Extension   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. Extension Shared equity financing agreement. Extension Donation of use of the property. Extension Examples. Extension Days used for repairs and maintenance. Extension Days used as a main home before or after renting. Extension Reporting Income and DeductionsNot used as a home. Extension Used as a home but rented less than 15 days. Extension Used as a home and rented 15 days or more. Extension If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Extension In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Extension Only your rental expenses may deducted on Schedule E (Form 1040). Extension Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Extension You must also determine if the dwelling unit is considered a home. Extension The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Extension Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Extension There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Extension Dwelling unit. Extension   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Extension It also includes all structures or other property belonging to the dwelling unit. Extension A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Extension   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. Extension Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Extension Example. Extension You rent a room in your home that is always available for short-term occupancy by paying customers. Extension You do not use the room yourself and you allow only paying customers to use the room. Extension This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Extension Dividing Expenses 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. Extension When dividing your expenses, follow these rules. Extension 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. Extension (This rule does not apply when determining whether you used the unit as a home. Extension ) Any day that the unit is available for rent but not actually rented is not a day of rental use. Extension Fair rental price. Extension   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Extension The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Extension   Ask yourself the following questions when comparing another property with yours. Extension Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. Extension Example. Extension Your beach cottage was available for rent from June 1 through August 31 (92 days). Extension Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. Extension The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Extension Your family also used the cottage during the last 2 weeks of May (14 days). Extension The cottage was not used at all before May 17 or after August 31. Extension You figure the part of the cottage expenses to treat as rental expenses as follows. Extension The cottage was used for rental a total of 85 days (92 − 7). Extension The days it was available for rent but not rented (7 days) are not days of rental use. Extension The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Extension You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Extension The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Extension Your rental expenses are 85/99 (86%) of the cottage expenses. Extension Note. Extension When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Extension Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Extension Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Extension If you have a net loss, you may not be able to deduct all of the rental expenses. Extension See Dwelling Unit Used as a Home, next. Extension Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Extension You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Extension See What is a day of personal use , later. Extension If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. Extension Instead, count it as a day of personal use in applying both (1) and (2) above. Extension What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Extension You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Extension However, see Days used as a main home before or after renting , later. Extension A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Extension Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Extension ), and lineal descendants (children, grandchildren, etc. Extension ). Extension Anyone under an arrangement that lets you use some other dwelling unit. Extension Anyone at less than a fair rental price. Extension Main home. Extension   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Extension Shared equity financing agreement. Extension   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Extension Donation of use of the property. Extension   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Extension Examples. Extension   The following examples show how to determine if you have days of personal use. Extension Example 1. Extension You and your neighbor are co-owners of a condominium at the beach. Extension Last year, you rented the unit to vacationers whenever possible. Extension The unit was not used as a main home by anyone. Extension Your neighbor used the unit for 2 weeks last year; you did not use it at all. Extension Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Extension Example 2. Extension You and your neighbors are co-owners of a house under a shared equity financing agreement. Extension Your neighbors live in the house and pay you a fair rental price. Extension Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Extension This is because your neighbors rent the house as their main home under a shared equity financing agreement. Extension Example 3. Extension You own a rental property that you rent to your son. Extension Your son does not own any interest in this property. Extension He uses it as his main home and pays you a fair rental price. Extension Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Extension Example 4. Extension You rent your beach house to Rosa. Extension Rosa rents her cabin in the mountains to you. Extension You each pay a fair rental price. Extension You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. Extension Example 5. Extension You rent an apartment to your mother at less than a fair rental price. Extension You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. Extension Days used for repairs and maintenance. Extension   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Extension Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Extension Example. Extension Corey owns a cabin in the mountains that he rents for most of the year. Extension He spends a week at the cabin with family members. Extension Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. Extension Corey's family members, however, work substantially full time on the cabin each day during the week. Extension The main purpose of being at the cabin that week is to do maintenance work. Extension Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. Extension Days used as a main home before or after renting. Extension   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Extension Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Extension You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Extension However, this special rule does not apply when dividing expenses between rental and personal use. Extension See Property Changed to Rental Use in chapter 4. Extension Example 1. Extension On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. Extension You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). Extension On June 1, 2013, you moved back into your old house. Extension The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. Extension Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. Extension Example 2. Extension On January 31, you moved out of the condominium where you had lived for 3 years. Extension You offered it for rent at a fair rental price beginning on February 1. Extension You were unable to rent it until April. Extension On September 15, you sold the condominium. Extension The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. Extension Examples. Extension   The following examples show how to determine whether you used your rental property as a home. Extension Example 1. Extension You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Extension You rented the basement apartment at a fair rental price to college students during the regular school year. Extension You rented to them on a 9-month lease (273 days). Extension You figured 10% of the total days rented to others at a fair rental price is 27 days. Extension During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Extension Your basement apartment was used as a home because you used it for personal purposes for 30 days. Extension Rent-free use by your brothers is considered personal use. Extension Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Extension Example 2. Extension You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Extension Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Extension You figured 10% of the total days rented to others at a fair rental price is 3 days. Extension The room was used as a home because you used it for personal purposes for 21 days. Extension That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Extension Example 3. Extension You own a condominium apartment in a resort area. Extension You rented it at a fair rental price for a total of 170 days during the year. Extension For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Extension Your family actually used the apartment for 10 of those days. Extension Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Extension You figured 10% of the total days rented to others at a fair rental price is 16 days. Extension Your family also used the apartment for 7 other days during the year. Extension You used the apartment as a home because you used it for personal purposes for 17 days. Extension That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Extension Minimal rental use. Extension   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Extension See Used as a home but rented less than 15 days, later, for more information. Extension Limit on deductions. Extension   Renting a dwelling unit that is considered a home is not a passive activity. Extension Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Extension The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Extension Any expenses carried forward to the next year will be subject to any limits that apply for that year. Extension This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Extension   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. Extension Reporting Income and Deductions Property not used for personal purposes. Extension   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. Extension Property used for personal purposes. Extension   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Extension Not used as a home. Extension   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Extension Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Extension The expenses for personal use are not deductible as rental expenses. Extension   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. Extension Used as a home but rented less than 15 days. Extension   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Extension You are not required to report the rental income and rental expenses from this activity. Extension The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Extension See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Extension Used as a home and rented 15 days or more. Extension   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Extension Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Extension The expenses for personal use are not deductible as rental expenses. Extension   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Extension You do not need to use Worksheet 5-1. Extension   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Extension To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. Extension Worksheet 5-1. Extension Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Extension Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Extension ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Extension Rental Use Percentage A. Extension Total days available for rent at fair rental price A. Extension       B. Extension Total days available for rent (line A) but not rented B. Extension       C. Extension Total days of rental use. Extension Subtract line B from line A C. Extension       D. Extension Total days of personal use (including days rented at less than fair rental price) D. Extension       E. Extension Total days of rental and personal use. Extension Add lines C and D E. Extension       F. Extension Percentage of expenses allowed for rental. Extension Divide line C by line E     F. Extension . Extension PART II. Extension Allowable Rental Expenses 1. Extension Enter rents received 1. Extension   2a. Extension Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Extension       b. Extension Enter the rental portion of real estate taxes b. Extension       c. Extension Enter the rental portion of deductible casualty and theft losses (see instructions) c. Extension       d. Extension Enter direct rental expenses (see instructions) d. Extension       e. Extension Fully deductible rental expenses. Extension Add lines 2a–2d. Extension Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Extension   3. Extension Subtract line 2e from line 1. Extension If zero or less, enter -0- 3. Extension   4a. Extension Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Extension       b. Extension Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Extension       c. Extension Carryover of operating expenses from 2012 worksheet c. Extension       d. Extension Add lines 4a–4c d. Extension       e. Extension Allowable expenses. Extension Enter the smaller of line 3 or line 4d (see instructions) 4e. Extension   5. Extension Subtract line 4e from line 3. Extension If zero or less, enter -0- 5. Extension   6a. Extension Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Extension       b. Extension Enter the rental portion of depreciation of the dwelling unit b. Extension       c. Extension Carryover of excess casualty losses and depreciation from 2012 worksheet c. Extension       d. Extension Add lines 6a–6c d. Extension       e. Extension Allowable excess casualty and theft losses and depreciation. Extension Enter the smaller of  line 5 or line 6d (see instructions) 6e. Extension   PART III. Extension Carryover of Unallowed Expenses to Next Year 7a. Extension Operating expenses to be carried over to next year. Extension Subtract line 4e from line 4d 7a. Extension   b. Extension Excess casualty and theft losses and depreciation to be carried over to next year. Extension  Subtract line 6e from line 6d b. Extension   Worksheet 5-1 Instructions. Extension Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Extension Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Extension Line 2a. Extension Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Extension Do not include interest on a loan that did not benefit the dwelling unit. Extension For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Extension Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Extension Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Extension   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Extension See the Schedule A instructions. Extension However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Extension See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Extension Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Extension   Note. Extension Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Extension Instead, figure the personal portion on a separate Schedule A. Extension If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Extension           Line 2c. Extension Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Extension To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Extension If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Extension On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Extension Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Extension   Note. Extension Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Extension Instead, figure the personal portion on a separate Form 4684. Extension           Line 2d. Extension Enter the total of your rental expenses that are directly related only to the rental activity. Extension These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Extension Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Extension           Line 2e. Extension You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Extension Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Extension           Line 4b. Extension On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Extension If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Extension Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). Extension           Line 4e. Extension You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Extension *           Line 6a. Extension To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Extension   A. Extension Enter the amount from Form 4684, line 10       B. Extension Enter the rental portion of line A       C. Extension Enter the amount from line 2c of this worksheet       D. Extension Subtract line C from line B. Extension Enter the result here and on line 6a of this worksheet               Line 6e. Extension You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Extension * *Allocating the limited deduction. Extension If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Extension Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Extension Prev  Up  Next   Home   More Online Publications

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Extension 7. Extension   Ship Passenger Tax Table of Contents A tax of $3 per passenger is imposed on certain ship voyages, as explained later under Taxable situations. Extension The tax is imposed only once for each passenger, either at the time of first embarkation or disembarkation in the United States. Extension The person providing the voyage (the operator of the vessel) is liable for the tax. Extension Voyage. Extension   A voyage is the vessel's journey that includes the outward and homeward trips or passages. Extension The voyage starts when the vessel begins to load passengers and continues until the vessel has completed at least one outward and one homeward passage. Extension The tax may be imposed even if a passenger does not make both an outward and a homeward passage as long as the voyage begins or ends in the United States. Extension Passenger. Extension   A passenger is an individual carried on the vessel other than the Master or a crew member or other individual engaged in the business of the vessel or its owners. Extension Example 1. Extension John Smith works as a guest lecturer. Extension The cruise line hired him for the benefit of the passengers. Extension Therefore, he is engaged in the business of the vessel and is not a passenger. Extension Example 2. Extension Marian Green is a travel agent. Extension She is taking the cruise as a promotional trip to determine if she wants to offer it to her clients. Extension She is a passenger. Extension Taxable situations. Extension   There are two taxable situations. Extension The first situation involves voyages on commercial passenger vessels extending over one or more nights. Extension A voyage extends over one or more nights if it extends for more than 24 hours. Extension A passenger vessel is any vessel with stateroom or berth accommodations for more than 16 passengers. Extension   The second situation involves voyages on a commercial vessel transporting passengers engaged in gambling on the vessel beyond the territorial waters of the United States. Extension Territorial waters of the United States are those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3. Extension 45 statute miles) from low tide on the coastline. Extension If passengers participate as players in any policy game or other lottery, or any other game of chance for money or other thing of value that the owner or operator of the vessel (or their employee, agent, or franchisee) conducts, sponsors, or operates, the voyage is subject to the ship passenger tax. Extension The tax applies regardless of the duration of the voyage. Extension A casual, friendly game of chance with other passengers that is not conducted, sponsored, or operated by the owner or operator is not gambling for determining if the voyage is subject to the ship passenger tax. Extension Exemptions. Extension   The tax does not apply when a vessel is on a voyage of less than 12 hours between 2 points in the United States or if a vessel is owned or operated by a state or local government. Extension Prev  Up  Next   Home   More Online Publications