Article from Dental CPA, Rea & Associates, on the common issues and challenges associated with dental practice office rental.

2. The income is not taxable but no Schedule E rental expenses are allowed.

3. If the home is designated as the second residence, and the personal use exceeds the greater of 14 days or 10 percent of the number of rental days, interest is deductible on Schedule A. (If the property isn’t rented at all, it would just designated as the second residence.)

4. As a second residence, the home cannot be a multi-million dollar property and the homeowner is limited to acquisition indebtedness and the limited equity indebtedness.

6. Under vacation home rules, the IRS allows deduction of qualified second home interest and taxes 100 percent, divided between a portion on Schedule E and a portion on Schedule A.

7. The IRS also requires that other rental expenses be limited to the extent the homeowner receives income from the property, which is taken on Schedule E to the extent allowed.

8. If rental expenses exceed rental income, those expenses are suspended and carried forward to future years.Rental Income with Very Limited Personal Use<br />Homeowners who rent their property and have less than 14 days of personal use or have personal use that does not exceed 10 percent of rental days, the income on the property would be reported on Schedule E. <br />Homeowners report prorated taxes by dividing them between Schedule E and Schedule A.<br />Unfortunately, the IRS considers the personal portion of interest to be “personal interest,” much like credit card interest, and is it not deductible.<br />The real estate investment game has changed dramatically based on market conditions, but it can still be a viable investment under the right circumstances. So when it comes to renting your personal property, the length of the rental and the amount of personal use you receive determines how your property income is treated by the IRS. Your tax professional can assist you in filing the appropriate return and determining the correct treatment for your situation.<br />How to Determine Tax Treatment of Property with Personal and Rental UsePersonal ResidenceVacation HomeRental Property with Personal UsePersonal use of the property for more than 14 days or 10% of rental timePersonal use of the property for more than 14 days or 10% of rental timePersonal use of the property does not exceed 14 days or 10% of rental timeRented less than 15 daysRented more than 15 daysRented more than 15 daysPresented as rental property<br />Tax Treatment Steps Depending on Home or Rental UsePersonal ResidenceVacation HomeRental Property with Personal UseDo not report rental incomeReport rental income on Schedule EReport rental income and expenses on Schedule E Do not report rental expensesProrate expenses between personal and rental use Prorate expenses between personal and rental use Report 100% interest on Schedule A if a qualified residenceDeduct personal portion of interest, taxes and casualty losses on Schedule A Report personal taxes on Schedule AReport 100% of real estate taxes on Schedule ARental interest, taxes and casualty losses are not limited under the Internal Revenue Code Interest from personal use is not deductibleOther rental deductions are limited to remaining gross income from the property, subject to ordering rules If presented as a rental, interest is deductible on Schedule A if the property is a qualified residenceCarryovers are allowed.Real estate taxes are deductible on Schedule<br />Alan Hill, CPA, serves as director of dental services. Working in Rea’s Mentor, Ohio office, he specializes small businesses and high net worth individuals. He can be reached at 440-266-0077 or alan.hill@reacpa.com. Joseph Popp, JD, LM, is an attorney specializing in tax and estate planning working in Rea’s Columbus office. He can be reached at 614-889-8725 or joseph.popp@reacpa.com.<br />