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This tax worksheet calculates the limit on rental deduction for individual income tax purposes.

Use this tax worksheet only if all of the following apply:

• Taxpayer had more than 14 personal use days (or, if greater, 10% of the number of rental days).
• Taxpayer rented the dwelling unit 15 days or more this year.
• The total of rental expenses and depreciation exceeding rental income.

For further assistance on this topic, click the Tax Flowcharts item group button to view the following tax flowcharts:

• PALs – Real Estate Professional and Rental activities
• Mixed Used Dwelling – Tax Treatment

Footnotes

1. According to the Bolton and McKinney cases, the rental portion of interest and taxes can be computed by dividing rental days by total days in the year (rather than total days used as the IRS does).
2. Include only mortgage interest and qualified mortgage insurance premiums for the dwelling unit that would be deductible on Schedule A if the unit had not been rented, with the following modifications:

   * Do not include interest on a loan that did not benefit the dwelling unit (e.g., interest on a home equity loan used for personal expenses, such as paying off credit card debt or paying college tuition).

   * When computing the deductible mortgage insurance premiums, figure adjusted gross income without rental income and expenses from the dwelling unit.

3. Figure the casualty and theft losses related to the dwelling unit that would be deductible on Schedule A if the dwelling unit had not been rented, as follows:

   * Treat the loss(es) as personal.

   * When computing the deductible amount, use 10% of AGI figured without rental income and expenses from the dwelling unit.

4. Expenses directly related only to the rental activity, such as interest on loans used for rental activities other than to buy, build, or improve the dwelling unit, rental agency fees, advertising, office supplies, and depreciation on office equipment used in the rental activity.
5. These amounts are deductible as rental expenses on Schedule E even if they exceed rental income.
6. If the taxpayer was unable to deduct all expenses last year because of the rental income limit, add these unused amounts to expenses for this year.
7. Mortgage interest and qualified mortgage insurance premiums not deductible on Schedule A because they exceed the limit on home mortgage interest or qualified mortgage insurance premiums. Do not include interest on a loan that did not benefit the dwelling unit. See Footnote 2.
8. If the deductions on lines 17 or 22 are limited, allocate the allowable deduction among the expenses included on those lines in any way desired. Enter the amount allocated to each expense on the appropriate line of Schedule E, Part I.
9. The rental portion of excess casualty and theft losses is the amount of the loss multiplied by the rental percentage (line 4 of this worksheet) minus the amount entered on line 8 of this worksheet.
10. The rental portion of depreciation is the depreciation expense for the year multiplied by the rental percentage (line 4 of this worksheet).

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