If you rent out an apartment or room in a multi-unit residence in which you also live, you report rent receipts and deduct expenses allocated to the rented part of the property on Schedule E of Form 1040 whether or not you itemize deductions. You deduct interest and taxes on your personal share of the property as itemized deductions on Schedule A of Form 1040 if you itemize deductions. If you or close relatives personally use the rented portion during the year and expenses exceed income, loss deductions may be barred under the personal-use rules (9.7).
Even if a loss is not barred by the personal-use rules (9.7), a loss shown on Schedule E is subject to the passive loss restrictions discussed in Chapter 10. The loss, if it comes within the $25,000 allowance (10.2) or the exception for real estate professionals (10.3), may be deducted from any type of income. If your only passive activity losses are rental losses of $25,000 or less from actively managed rental real estate and your modified adjusted gross income is $100,000 or less, you do not have to use Form 8582 to deduct losses under the $25,000 allowance (10.12). If you are not a qualifying real estate professional and cannot claim the allowance, the loss may be deducted only from passive activity income.
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