Author Topic: "Not Rented for Profit" housing IRS publication 527  (Read 885 times)

FireAnt

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"Not Rented for Profit" housing IRS publication 527
« on: September 10, 2021, 08:47:14 AM »
Anyone rent a room or home “not for profit”/below market value?

I am a traveling healthcare worker. I own my home and exploring renting out a room or two while I’m on assignment. I’m not looking to make a profit, but recoup some of the costs of my mortgage and other expenses only. (Won’t be my room, as I have to maintain a “tax home” for tax purposes) Ideally I’m only going to rent out to a friend or acquaintance.

I posted something similar last year when I had a family friend stay for a couple months, but this time it would be 6 months (Nov-April). Also ran across the "not for profit" in my research and wondered if that would be an easier route. Does anyone with experience/knowledge provide insight?  I’ve always had a standard deduction, so I wouldn’t be itemizing any losses.


bacchi

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #1 on: September 10, 2021, 11:37:52 AM »
Why would you do this instead of renting it out as usual with a Schedule E? What's the advantage?

Schedule E goes on Schedule 1, which affects your "Total Income." The Standard Deduction is lower and affects your "Taxable Income."

mcneally

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #2 on: September 10, 2021, 11:53:13 AM »
Renting 'not for profit/ below market value' just means that you can't deduct more expenses than more than the amount of rent received. It doesn't automatically make rents received tax free or relieve you of needed to track things.

If you rent out your house for half the year, you could deduct half of the real estate taxes, mortgage interest, insurance, etc. I'm too lazy to look up the rules of what can be deducted if you rent out less than the whole house.
« Last Edit: September 10, 2021, 11:55:01 AM by mcneally »

FireAnt

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #3 on: September 10, 2021, 06:01:00 PM »
Why would you do this instead of renting it out as usual with a Schedule E? What's the advantage?

Schedule E goes on Schedule 1, which affects your "Total Income." The Standard Deduction is lower and affects your "Taxable Income."

I am looking at this as an alternative to going through the process of claiming it as rental income. My hope is to make the process simpler, as I would have to do all kinds of work such as what was suggested in a previous post "amortization schedules on the structure (but not the land) and apportionment of the space being used by your tenant to figure out how much of the rental income you can offset for taxes."

From my limited research it looks like I wouldn't have to pay taxes as I'm not profiting, although I am just a social worker and understanding these publications and laws is not my forte.

cchrissyy

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #4 on: September 10, 2021, 07:21:21 PM »
it's not saying you avoid paying tax on the rental income.

all it is saying is there's an extra low limit on how much you can deduct.

this topic is for people who rent below market rate such as, to help out a family member.

you don't want to fall under this rule.


skuzuker28

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #5 on: September 11, 2021, 12:05:27 PM »
it's not saying you avoid paying tax on the rental income.

all it is saying is there's an extra low limit on how much you can deduct.

this topic is for people who rent below market rate such as, to help out a family member.

you don't want to fall under this rule.
This.

If you don't itemize your deductions, you won't get ANY deduction for the expenses related to the house.  You also can't deduct repairs, utilities, etc. that aren't already deductible on Sch. A.

Additionally, the rental income is included in calculating AGI which could have other follow-through effects.

For most people, this rule causes them to report their rental income but not get ANY corresponding deductions.

FireAnt

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #6 on: September 12, 2021, 09:59:38 AM »
it's not saying you avoid paying tax on the rental income.

all it is saying is there's an extra low limit on how much you can deduct.

this topic is for people who rent below market rate such as, to help out a family member.

you don't want to fall under this rule.
This.

If you don't itemize your deductions, you won't get ANY deduction for the expenses related to the house.  You also can't deduct repairs, utilities, etc. that aren't already deductible on Sch. A.

Additionally, the rental income is included in calculating AGI which could have other follow-through effects.

For most people, this rule causes them to report their rental income but not get ANY corresponding deductions.

I understand, but this is why I don't want to go that route. Trying to keep things simple and help a friend or acquaintance out. I do my own taxes and I feel like at that point it would require a CPA due to the complexity of the situation. From my minimal understanding, the deductions are only portions of everything due to it being a room vs the whole home adding additional layers of complexity.

Just trying to think of creative solutions. Thanks.

bacchi

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #7 on: September 12, 2021, 10:10:22 AM »
it's not saying you avoid paying tax on the rental income.

all it is saying is there's an extra low limit on how much you can deduct.

this topic is for people who rent below market rate such as, to help out a family member.

you don't want to fall under this rule.
This.

If you don't itemize your deductions, you won't get ANY deduction for the expenses related to the house.  You also can't deduct repairs, utilities, etc. that aren't already deductible on Sch. A.

Additionally, the rental income is included in calculating AGI which could have other follow-through effects.

For most people, this rule causes them to report their rental income but not get ANY corresponding deductions.

I understand, but this is why I don't want to go that route. Trying to keep things simple and help a friend or acquaintance out. I do my own taxes and I feel like at that point it would require a CPA due to the complexity of the situation. From my minimal understanding, the deductions are only portions of everything due to it being a room vs the whole home adding additional layers of complexity.

Just trying to think of creative solutions. Thanks.

Eh. The IRS isn't going to send a team of agents because you miscalculated the room size and the shared space allocation. And, ultimately, they have better things to do than worry about ~$500 in rent per month.

No need for a CPA. Any tax program can handle this.

AMandM

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #8 on: September 13, 2021, 11:41:38 AM »
As I understand it, the rent is income whether or not you are renting for profit.

If you are renting for profit and itemizing deductions, you deduct your rental expenses including depreciation; the net change to your taxable income, compared to not having the rental, is the difference between the rental income and rental expenses and this could potentially be negative, if your expenses are greater than your rent income.

If you are renting not for profit and itemizing deductions, you deduct your rental expenses including depreciation but only to a maximum of the rental income; the net change to your taxable income is never less than zero.

If you are not itemizing deductions, you still have to declare the rental income either way and your taxable income is increased by the rental income.

Somebody more knowledgeable, please correct me if I'm wrong.

FireAnt

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #9 on: September 13, 2021, 08:01:32 PM »
it's not saying you avoid paying tax on the rental income.

all it is saying is there's an extra low limit on how much you can deduct.

this topic is for people who rent below market rate such as, to help out a family member.

you don't want to fall under this rule.
This.

If you don't itemize your deductions, you won't get ANY deduction for the expenses related to the house.  You also can't deduct repairs, utilities, etc. that aren't already deductible on Sch. A.

Additionally, the rental income is included in calculating AGI which could have other follow-through effects.

For most people, this rule causes them to report their rental income but not get ANY corresponding deductions.

I understand, but this is why I don't want to go that route. Trying to keep things simple and help a friend or acquaintance out. I do my own taxes and I feel like at that point it would require a CPA due to the complexity of the situation. From my minimal understanding, the deductions are only portions of everything due to it being a room vs the whole home adding additional layers of complexity.

Just trying to think of creative solutions. Thanks.

Eh. The IRS isn't going to send a team of agents because you miscalculated the room size and the shared space allocation. And, ultimately, they have better things to do than worry about ~$500 in rent per month.

No need for a CPA. Any tax program can handle this.

With that logic why would I even both claiming this at all on my taxes? haha. Good to know that any tax program can handle this. It must sound more complicated than it really is.

sailinlight

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Re: "Not Rented for Profit" housing IRS publication 527
« Reply #10 on: September 14, 2021, 07:10:48 AM »
I'm not a tax professional but I wouldn't even bother reporting it. There would be no net change to your taxes, so the worst case if you were audited and they found about the extra "income" from your friend you can show deductions to offset it. Or just think of it as a gift..