How to Rent Your House to Take a Tax Loss
In the United States, the rental of a personal residence by an individual income tax payer may result in a taxable loss that the taxpayer may use to reduce taxable income from all other sources. Because of the potential for taxpayers to abuse this provision of the Internal Revenue Code and claim fictitious losses, taxpayers must meet several requirements in order to deduct the loss.
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Instructions
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Vacate your personal residence or the portion of your personal residence you wish to rent. In order to claim a taxable loss from the rental of your personal residence, you must end your residency for a period of at least 12 consecutive months or any period that ends with the sale of your personal residence. Although you may rent a personal residence without permanently or temporarily vacating your home, losses from such a rental may not be used to offset income from other sources.
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Rent or attempt to rent your personal residence. An example of an attempt to rent the property would be posting an advertisement noting the property's availability for rental.
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Keep a record of all income and expenses incurred related to the property.
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Record all income and expenses of the property on Schedule E, Supplemental Income and Loss, to IRS Form 1040, U.S. Individual Income Tax Return.
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Report any loss computed on Schedule E on page 1 of Form 1040 on the "Rental Real Estate" line.
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Attach Schedule E when filing Form 1040 with the IRS.
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Tips & Warnings
Because of deductions for depreciation, taxpayers may often be able to claim a loss from the rental of property even when cash flows from the property are neutral or even positive.
For most taxpayers, the maximum deductible loss from rental real estate is $25,000 per annum.
High income individual income tax payers with modified adjusted gross incomes above $150,000 are generally not able to deduct losses from rental real estate activities.
