Rental property

Discussion in 'Financial Planning' started by HW \Skip\ Weldon, Dec 7, 2010.

  1. My understanding has been that a property owner has to limit his/her
    personal use of his/her rental property to 14 days in order to qualify
    the property as "rental property".

    Given the recession and reduced rental demand, enforcing that rule is
    the equivalent of requiring that a property remain vacant.

    Is the 14-day rule still in effect? And if so, are there any property
    insurance problems as a result of those vacancies?
     
    HW \Skip\ Weldon, Dec 7, 2010
    #1
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  2. HW \Skip\ Weldon

    Don Guest

    On Dec 7, 9:19 am, "HW \"Skip\" Weldon" <>
    wrote:
    > My understanding has been that a property owner has to limit his/her
    > personal use of his/her rental property to 14 days in order to qualify
    > the property as "rental property".
    >
    > Given the recession and reduced rental demand, enforcing that rule is
    > the equivalent of requiring that a property remain vacant.
    >
    > Is the 14-day rule still in effect?  And if so, are there any property
    > insurance problems as a result of those vacancies?



    My wife and I own a property in a resort area in the state of Maine,
    which we rent by the week during the summer tourist season and close
    down completely in the winter. We have never had a problem getting
    insurance. The summer demand has actually increased over the last
    several seasons in spite of the recession. Last summer was our most
    profitable year since we bought the house in 2001. This is probably an
    entirely different situation from house or apartment rentals in a non-
    resort location, but there is definitely no shortage of vacationers
    willing to pay between 1100 and 1700 a week in a resort area.

    I would guess that the problem of vacancies because of the recession
    varies a lot depending on the type of property and location. Those
    affluent people earning over 250,000, about whom there has been all
    the controversy as to whether or not to extend the tax cuts, no doubt
    still have plenty of cash to spend on holidays, and that is probably
    also true for many people with less income.
     
    Don, Dec 7, 2010
    #2
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  3. HW \Skip\ Weldon

    bo peep Guest

    On Dec 7, 10:19 am, "HW \"Skip\" Weldon"
    <> wrote:
    > My understanding has been that a property owner has to limit his/her
    > personal use of his/her rental property to 14 days in order to qualify
    > the property as "rental property".


    Its a bit more complex than that. From
    http://www.irs.gov/taxtopics/tc415.html

    "You are considered to use a dwelling unit as a home if you use it for
    personal purposes during the tax year for more than the greater of: 14
    days or 10% of the total days it is rented to others at a fair rental
    price."
     
    bo peep, Dec 7, 2010
    #3
  4. HW \Skip\ Weldon

    jIM Guest

    On Dec 7, 12:19 pm, "HW \"Skip\" Weldon"
    <> wrote:
    > My understanding has been that a property owner has to limit his/her
    > personal use of his/her rental property to 14 days in order to qualify
    > the property as "rental property".
    >
    > Given the recession and reduced rental demand, enforcing that rule is
    > the equivalent of requiring that a property remain vacant.
    >
    > Is the 14-day rule still in effect?  And if so, are there any property
    > insurance problems as a result of those vacancies?


    I took a tax class and will be doing taxes for first time in 2011. I
    believe that 14 day rule existed in 2009 and will for tax year 2010
    too.

    How that impacts vacancy and how you connected those two dots is
    puzzling to me... that 14 day rule pretty much means if collect rent
    for 14 days or less, that income is free from taxation. Meaning if
    superbowl comes to your city, and you rent your house for 10 days,
    that income is tax free.

    If you were looking at rule from a different direction, remind me what
    you are after?
     
    jIM, Dec 7, 2010
    #4
  5. "HW "Skip" Weldon" <> wrote in message
    news:...
    > My understanding has been that a property owner has to limit his/her
    > personal use of his/her rental property to 14 days in order to qualify
    > the property as "rental property".
    >
    > Given the recession and reduced rental demand, enforcing that rule is
    > the equivalent of requiring that a property remain vacant.
    >
    > Is the 14-day rule still in effect? And if so, are there any property
    > insurance problems as a result of those vacancies?
    >


    Its a bit more convoluted that it appears AND I'm not sure I follow your
    thinking.

    The rule says "essentially" that in order to treat the property "solely" as
    a rental your personal use must be limited to the lesser of no more than 14
    days OR 10% of the days rented. If your personal use exceeds these amounts
    you have to limit the rental activity as reported on Schedule E.

    So if you rented the property for 200 days your personal use can't exceed 14
    days
    OR if you rented the property for 100 days your personal use can't exceed 10
    days

    This applies to ability to deduct the expenses associated with the property.

    I don't quite follow your thinking about how enforcing that rule means that
    the property must remain empty - but maybe I'm missing something. It gets
    quirky because the property can be considered FOR RENT and still qualify AND
    some of the time you spend there personally may not count as personal use.
    For example, if you spent a whole month at the property BUT you spent that
    time putting on a new roof, installing new carpet, painting and doing other
    repair/maintenance type stuff then this is NOT personal use and doesn't
    count.

    Gene E. Utterback, EA, RFC, ABA
     
    Gene E. Utterback, EA, RFC, ABA, Dec 8, 2010
    #5
  6. HW \Skip\ Weldon

    Guest

    bo peep <> writes:
    > On Dec 7, 10:19 am, "HW \"Skip\" Weldon"
    > <> wrote:
    >> My understanding has been that a property owner has to limit his/her
    >> personal use of his/her rental property to 14 days in order to qualify
    >> the property as "rental property".

    >
    > Its a bit more complex than that. From
    > http://www.irs.gov/taxtopics/tc415.html


    The following article discusses the 14-day (or 10%) rule and has some
    examples of different cases and applications (ie. lots of rental little
    personal use, lots of personal use little rental, etc)

    http://www.smartmoney.com/personal-finance/taxes/taxes-on-vacation-homes-9562/



    --
    Plain Bread alone for e-mail, thanks. The rest gets trashed.
     
    , Dec 8, 2010
    #6
  7. HW \Skip\ Weldon

    Don Guest

    On Dec 8, 10:29 am, "Gene E. Utterback, EA, RFC, ABA"
    <> wrote:

    > So if you rented the property for 200 days your personal use can't exceed 14
    > days
    > OR if you rented the property for 100 days your personal use can't exceed 10
    > days


    Are you sure about that? The way I read the regulation, you can always
    use it personally for up to 14 days, and it is still a rental
    property, no matter how long it is actually rented.

    A gray area is when you live there for a longer period yourself but do
    some renovations and handle business matters at the same time. When my
    wife and I bought our house in Maine, we lived in it for 6 months
    doing a lot of repairs, installing a new furnace, fixing the roof,
    upgrading the electrical system, and other business-related things,
    but we still had a great time, almost like a vacation, hiking,
    playing, eating, enjoying the scenery, and living it up. Our tax
    account said it was still a rental property for the year, and the IRS
    agreed.
     
    Don, Dec 8, 2010
    #7
  8. HW \Skip\ Weldon

    Don Guest

    On Dec 8, 10:29 am, "Gene E. Utterback, EA, RFC, ABA"
    <> wrote:

    > So if you rented the property for 200 days your personal use can't exceed 14
    > days
    > OR if you rented the property for 100 days your personal use can't exceed 10
    > days



    Neither of the above statements is true. It follows from the
    information in the IRS.gov site that the owner is allowed personal use
    of the property for as many as 32 days of the year, and it would still
    be considered a rental property, provided it is rented for the
    remaining 333 days. And 14 days is allowed irrespective of the number
    of days rented. It is the GREATER of 14 days or 10% of the number of
    days rented.
     
    Don, Dec 9, 2010
    #8
  9. "Don" <> wrote in message
    news:...
    > On Dec 8, 10:29 am, "Gene E. Utterback, EA, RFC, ABA"
    > <> wrote:
    >
    >> So if you rented the property for 200 days your personal use can't exceed
    >> 14
    >> days
    >> OR if you rented the property for 100 days your personal use can't exceed
    >> 10
    >> days

    >
    >
    > Neither of the above statements is true. It follows from the
    > information in the IRS.gov site that the owner is allowed personal use
    > of the property for as many as 32 days of the year, and it would still
    > be considered a rental property, provided it is rented for the
    > remaining 333 days. And 14 days is allowed irrespective of the number
    > of days rented. It is the GREATER of 14 days or 10% of the number of
    > days rented.



    My esteemed colleague Don may be right. I have not checked the rules and
    regs on this and wrote from recollection.

    The caveat here is that one should always check what they get here. While
    most of us, myself included, do our best to provide accurate and correct
    information, it is FREE advice and is often not fully researched.

    Gene E. Utterback, EA, RFC, ABA
     
    Gene E. Utterback, EA, RFC, ABA, Dec 13, 2010
    #9
  10. HW \Skip\ Weldon

    Don Guest

    On Dec 13, 10:04 am, "Gene E. Utterback, EA, RFC, ABA"
    <> wrote:

    > My esteemed colleague Don may be right.  I have not checked the rules and
    > regs on this and wrote from recollection.


    Reading your original post was a shock because it hit close to home.
    If it were true that 14 days or even less is the maximum allowed
    personal use, I could owe some tax for several previous years.
     
    Don, Dec 14, 2010
    #10
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