Tax Treatment of a Dwelling Unit

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Personal Use of a Dwelling

If you have a home you rent out, but also use as a personal residence, the tax deductions you can take are slightly different than if you just rented the property out and never used it for personal use.

A dwelling unit is considered used for personal use if you live in it or use it for personal use for 14 days throughout the year or 10% of the days you rent it to others at a fair rental price. If you meet either restriction, you cannot take deductions that exceed the amount of rent received on the property.

Fair Rental Price

To determine how many days you rent the dwelling out at fair rental price, look at the rent charged around you. Is it more than what you charge others to stay on your property?

If you charge less than the fair rental price, or you let someone stay there for free, it counts as personal use of the dwelling and not a rental.

If you must count your dwelling for use as a personal property, you must split your expenses between the personal use and rental use.

Examples of Personal Use

John has a finished basement with a separate sleeping area, kitchen, and bathroom. It’s an apartment on the lower level of his home. John doesn’t use the basement and he rented it out for 6 months to a tenant that paid rent. For 2 months, John let his brother stay in the basement apartment because he lost his job and couldn’t afford his rent. John didn’t charge his brother rent.

John has personal use of the property because he let his family member stay there rent free and for longer than the 14 days or 10% of the time the unit was rented.

Determining Days of Personal Use

It can get confusing when determining your days of personal use of the home. First, you don’t have to consider main use of the home before or after you rented it if you rented the property (or tried) for 12 months or longer or you tried to rent the property for 12 months but sold it in less than 12 months.

Other personal use days include:

  • Days the owner or a family member uses the property
  • Anyone that uses the property and pays less than the fair market value

We know it can be confusing to determine what is rental use and what is personal use of a property when it comes to your taxes. Don’t let it overwhelm you and call us  at 714-383-2307 if you need help in navigating through