Rental Property - How is the Numerator Defined?

Forum|Forum|1 year ago
February 27, 2025
1 reply
15 views

I have a client who rented out his second home in 2024 for 80 days to unrelated third parties. He also used it personally for 3 days last year.

Since the rental income was short term in nature (rented for 4.3 days per customer on avg), I am reporting it on Schedule C and using Form 8829 to allocate mortgage interest, real estate taxes, utilities, etc.

Two questions:

1. Will the allocation be based on 80/365 x all of those expenses above? Or is it 362/365 since technically the home was "available to be rented" the entire year - with the exception of the few days he used it personally? How is the numerator defined (the top number in the fraction)?

2. Can I deduct on Sched A the portion of the mortgage interest and real estate taxes that is not used on Sched C?

Thanks for any feedback.

ProSeries Professional

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Best answer by TaxGuyBill

Nope. Still on Schedule E. Self-employment tax does not apply unless "services" are provided.

Because the average rental is 7 days or less, if they "Materially Participate" in it, you should check box "G" to make it non-passive.

T

TaxGuyBill

Level 15

Back up.

Are "services", such as maid service or meal provided to the tenants? If not, the rental belongs on Schedule E. Short term does not change it to Schedule C unless "services" are provided.

Schedule C is only used for a rental if "services" are provided to the tenants (and in those cases, the expenses go directly on Schedule C, not Form 8829).

In answer to your question, the usual method would be 80/83, unless you elect to use the Tax Court method for interest and taxes.

E

Ephesians3-14Author

Level 7

Maid services are not provided. Although he does have a local cleaning service that comes in and cleans the place after the renter is done. Not sure if that rises to the level of “maid services”?

I always thought that if you rented the property for less than seven days on average, that made it a trade or business and needed to be reported on schedule C

T

TaxGuyBillAnswer

Level 15

Nope. Still on Schedule E. Self-employment tax does not apply unless "services" are provided.

Because the average rental is 7 days or less, if they "Materially Participate" in it, you should check box "G" to make it non-passive.

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