rental tax question?

Question

I started renting out my personal house on Dec 15, 2006. Prior to this date I did some painting and bought some appliances. The IRS says if I rented my house less than 15 days I do not have to claim income. Can I deduct these expenses next year?

Can I start depreciating the appliances next year? Or could I claim the income and expenses because I converted the property before Dec 15?

Answer 1

No. You don't need to claim the income, but you don't get any deductions either. Expenses can only be claimed in the year that they're paid so those are lost forever.

For tax year 2007, the picture changes substantially, assuming that you rent it out for the full year. All normal costs related to the rental activity are deductible. The usual mortgage interest and property taxes, of course, as well as maintenance and repairs, landlord paid utilities, management fees and commissions, and depreciation (of the house but not the land) are all fair game.

Keep in mind that if you lived in it for at least 2 years and sell it within the 5 year window so that you lived in it for 2 of the 5 years prior to sale you may stil be able to exclude the gain from taxes BUT you must re-capture any depreciation allowed or allowable for the time that you rented it out.

Answer 2

If you do not claim rental income, do not deduct rental expenses.

You generally deduct rental expenses in the year you pay them.

I have reproduced part of the chapters and sections on Rental Income for you.

I suggest you thoroughly study the chapter and get further professional advice of a CPA if you do not understand.
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Publication 17 Your Federal Income Tax for Individuals

Chapter 9 Rental Income and Expenses

See Page 64

Rental Income

You generally must include in your gross income all amounts you receive as rent.

Rental of property also used as a home.
If you rent property that you also use as your home and you rent it fewer than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. However, you can deduct on Schedule A (Form 1040) the interest, taxes and casualty and theft losses that are allowed for non-rental property. See Personal Use of Dwelling Unit (including Vacation Home), later.

When to deduct.
You generally deduct rental expenses in the year you pay them.

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Page 65

Not Rented For Profit

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You can not carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see Chapter 1 of Publication 535.

Where to report. Report your not-for-profit rental income on Form 1040, line 21. You can include your mortgage interest 9 if you use the property as your main home or second home), rela estate taxes, and casualty losses on the appropriate lines of Form 1040, Schedule A, Itemized Deductions, if you itemize your deductions.

Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 22. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.