Deduction Limits Based on Property Use
The use of your property determines the amount of expenses you can deduct. There are special
rules if you:
do not rent your property for profit,
change the use of the property from personal use to rental use,
rent only part of your property, or
have any personal use of a vacation home or other dwelling unit that you rent out.
Not for profit rental property
If you do not rent your property for profit, you can deduct only those rental expenses
that do not exceed your rental income. You cannot carry forward any rental
expenses that are more than your rental income.
Not for profit rental income is reported on line 21 of Form 1040. Do not use Schedule E. Deduct
rental expenses on the appropriate lines of Schedule A if you are itemizing your deductions.
Property changed to rental use
If you change part or all of your home or other property to rental use after the beginning of
the year, you must allocate yearly expenses such as depreciation, taxes and insurance between rental use and
personal use. Your basis for depreciation must be the lesser of your adjusted cost basis or the fair market value
of the property on the date your change it from personal use. Deduct as rental expenses on Schedule E only the part
of the expense that is for the part of the year that property was held or used for rental purposes.
You an deduct as itemized deductions on Schedule A the interest and tax expenses for the part of
the year the property was held for personal purposes. Depreciation and insurance for personal use property are not