Publication 527 - Introductory Material


Future Developments

For the latest information about developments related to Publication 527, such as legislation enacted after it was published, go to www.irs.gov/pub527.

What's New

Net Investment Income Tax (NIIT). Beginning in 2013, you may be subject to the Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount. Net investment income may include rental income and other income from passive activities. Use Form 8960, Net Investment Income Tax, to figure this tax. For more information on NIIT, go to IRS.gov and enter “Net Investment Income Tax” in the search box.

Reminders

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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. In most cases, 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, 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.

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

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.

Tax-free exchange of rental property occasionally used for personal purposes.   If you meet certain qualifying use standards, you may qualify for a tax-free exchange (a like-kind or section 1031 exchange) of one piece of rental property you own for a similar piece of rental property, even if you have used the rental property for personal purposes.

  For information on the qualifying use standards, see Rev. Proc. 2008–16, 2008 IRB 547, at http://www.irs.gov/irb/2008-10_IRB/ar12.html . For more information on like-kind exchanges, see chapter 1 of Publication 544.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:

Internal Revenue Service 
Tax Forms and Publications Division 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can send your comments from www.irs.gov/formspubs/. Click on “More Information” and then on “Comment on Tax Forms and Publications”.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service 
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Tax questions.   If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Useful Items - You may want to see:

Publication

  • 463 Travel, Entertainment, Gift, and Car Expenses

  • 523 Selling Your Home

  • 534 Depreciating Property Placed in Service Before 1987

  • 535 Business Expenses

  • 544 Sales and Other Dispositions of Assets

  • 547 Casualties, Disasters, and Thefts

  • 551 Basis of Assets

  • 925 Passive Activity and At-Risk Rules

  • 946 How To Depreciate Property

Form (and Instructions)

  • 4562 Depreciation and Amortization

  • 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit

  • 8582 Passive Activity Loss Limitations

  • Schedule E (Form 1040) Supplemental Income and Loss

  See chapter 6, How To Get Tax Help for information about getting these publications and forms.


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