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Tax Advice for Owners of Rental Property

Are you a residential rental property owner? Read on. IRS Publication 527 provides excellent guidance on how to handle for tax purposes.

The other day, a friend of mine was asking me a few questions about his rental properties, both of which are houses. The questions were about depreciation, if a certain expense was or is deductible and where some other things fit on his IRS Schedule E.

If you are like him and own a rental or two, perhaps IRS Publication 527, Residential Rental Property, will be a key reference for you to keep handy as well.

So what's in it? From the introduction:

"Do you own a second house that you rent out all the time? Do you own a vacation home that you rent out when you or your family isn't using it?

These are two common types of residential rental activities discussed in this publication. Generally, all rental income must be reported on your tax return, but there are differences in the expenses you are allowed to deduct and in the way the rental activity is reported on your return.

First, this publication will look at the rental-for-profit activity in which there is no personal use of the property. We will look at types of income and when each is reported, and at types of expenses and which are deductible.

Chapter 2 discusses depreciation as it applies to your rental real estate activity—what property can be depreciated and how to figure it.

Chapter 3 covers the actual reporting of your rental income and deductions, including casualties and thefts, limitations on losses, and claiming the correct amount of depreciation.

Special rental situations are grouped together in chapter 4 . These include condominiums and cooperatives, property changed to rental use, renting only part of your property, and a not-for-profit rental activity.

Finally, in chapter 5 , we will look at the rules for rental income and expenses when there is also personal use of the dwelling unit, such as a vacation home."

Do note that as of late December, the PDF version of Pub 527 linked above is to/for the 2010 (tax year). The 2011 version should be up soon. To view or download it and/or anything else related to federal income tax go to irs.gov.

Other related topics and resources that may prove useful include: 

Sale of rental property. For information on how to figure and report any gain or loss from the sale or other disposition of your rental property, see Publication 544.

Sale of main home used as rental property. For information on how to figure and report any gain or loss from the sale or other disposition of your main home that you also used as rental property, see Publication 523, Selling Your Home.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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