 Income Tax 2021-2022 Software Example Personal Use of Dwelling Unit Including Vacation Home Get Ready to Get Refunds to the Max Diving into Income Tax 2021-2022 Lassert Tax Software You don't need tax software to follow along But you might want to have access to the forms and schedules Which you can find on the IRS website irs.gov, irs.gov, starting point single Tyler Adams Smith Living in Beverly Hills 90210 We got the W-2 wages at the 100,000 We got the Schedule C income from the rental property Flowing in to line 8 on the form 1040 at the 51912 Let's take a look at that flow through Going to the Schedule E The Supplemental Income and Loss This is where our focus will be We've got the rental property up top And we've got the net then at income Starting point at the 51912 That's rolling into the form 1040 Ultimately that we saw in line number 8 And we've got the standard deduction at the 12,550 That gives us the taxable income The 139,362 Page 2 Given us the tax calculation currently at the 27,468 So let's go back to page 1 Let's go then to the Schedule E Which is where our focus will be We've got our rental property here up top And now we've got this information Which shows us the fair rental days of 365 If we're renting for the entire year And it's full rental property Then that's pretty straightforward But now we're thinking about the allocation If we had personal use for example And business use Like it's a vacation home or something And we had some personal use of it And some business use where we have this allocation Between the business use and personal use Now again when we look at the income statement We don't have really a problem with the rents often times Or the income side of things Because all the income came from the rental use We didn't pay ourselves But we do have this issue on the expense side of things For the allocation from rental and the business Let's take a look at an example I won't get into the weeds too much In terms of what counts for a personal day And a rental day Let's dive into that in more detail We want to get to the ratio here So we've got a cottage that we rented out You use the cottage for personal purposes For 14 days The total usage of the cottage was 99 days That was the 14 days personal use And then you rented it 85 days So that counts for a total of 99 That gives us our ratio of the 85 over the 99 So if we had a ratio calculation Of something like that And we had to use that for our Calculations for income Might look something like this So we might say in a trustee excel worksheet Say we rented it for days rented Was the 85 days Personal use was the 14 days So the total days would be the sum of the 99 days So the allocation you would think Would be then the 85 divided by the total And then this would be the 14 over the total And we'll make this whole column a percentage format And if I sum that up That would be the 100% So we would then be allocating Between the personal use And the business use using that 85 So if we did that If we said okay my income Let's just make an income statement And say we had total income Of the 100,000 And then we've got expenses Which include possibly mortgage Mortgage property tax And then other And these two I want to break out specifically Because those are the items That you might still have some deductibility On the personal side possibly So let's see if I can spell it properly And so let's say this was 20,000 Or 7,500 And 40,000 We might have depreciation Which is going to be another big one And let's say that was 6,000 Or let's say it was 10,500 So I don't know Then you'd have to allocate it out Between the rental and the personal So if I say this is total Equals the sum of these And I'm going to put an underline here We'll do some indentation Indenting here Total expenses Possibly indent here again And that's going to give us our Net income Which is going to be equal to the 100 Minus the 78 Now as we break it out I'm not going to break out Using a ratio on the income I'm going to keep that at 100,000 and zero Because I didn't get any income From the personal side of things Let's make this black and white So it shows as a header Possibly more clearly Black, white of indented And so but here's where the ratio Comes into play I'm going to take this times The rental use 86 in this case I'm going to say f4 Making that absolute and copying that down And then this would be You can calculate it as this minus this Or we can say it's going to be this Times the 14% f4 We can copy that down And then we can kind of double check it With our total over here again Total is going to be the sum Of these two just to recalculate it out Give us a double check Getting us back up to the 20 there And then we can subtract Or sum equals the sum Of these I'm going to copy this one down And we'll copy this across So you might have to do Allocation of something like that And then of course The rental side of things would be This column that we would be looking at The personal side we might still get To deduct these items possibly On the schedule A as you enter that into the system So then if I was to go over to our To our return here It might look something like this I won't do the exact same numbers But we'd have to say basically up top That we had the number of days that we said For rental was 85 And then on the personal use We had the 14 days up top So we had the 14 And so then if I go back on over So now you can see up top we've got the 85 And then the 14 And then we've got basically Our income statement that's allocated Down below that we'd have to populate Based on the proper calculation For the rental numbers So note when we apply out the depreciation Which is going to be calculated in the software Typically then we're going to have to Make sure that we pick up that and apply out The proper amount of depreciation possibly Using kind of a ratio in order to do that Which we said was our 0.86% 0.86% Which helps us with our calculation In our worksheet down below For the depreciation Calculation that would then pull into the Schedule E Once we've determined the proper amount Of the schedule E Once we figure out the proper allocation With regards to the schedule E Then we might go to the schedule A And see if we qualify for the schedule A And looking particularly at Then the mortgage interest up top As well as the property taxes The property taxes that might be a deductible Component state and local personal property Taxes might be a deductible component as well So when we're doing our allocation That's what we're going to think We're going to think first we're thinking About these items that are going to be applied To the rental type of activity Try to figure out what's going to be The rental basically income statement And then we've got to put that into The tax system for the schedule E And make sure the schedule E Is properly basically reflected And then we can think about what other deductions We might have on the personal side That wasn't allocated to the schedule E Possibly on schedule A for example With the mortgage interest and the property taxes Now if you did this whole Allocation process properly And we look at the schedule E If it's not qualifying as a home Then we'd be subject to the losses We've got to be careful of the losses again So for example if I went back on over to the schedule E And we said that we had a loss Let's say we had a loss Bringing the advertising, let's say up to 160,000 Giving us a loss So if I go back on up Now we've got a loss that's subject to the Rules we looked at before With regards to the losses Which would be the form 6198 And for most individual taxpayers Most likely the passive losses Would be the limitation form 8582 Limiting at this point to the 25,000 And that rolls over to the page 1 So we've got those calculations That we looked at in the past Which with the key terms Are passive activity rules Are we actively participating Are we a real estate professional To determine the amount of losses As well as basically our income thresholds That if it goes over a certain level Then the losses will be reduced According to the income thresholds We looked at in the past However, if it's a qualified home Then we have further restrictions Possibly And here's the rules for the main home Dwelling unit used as a home If you use a dwelling unit For both rental and personal purposes The tax treatment of the rental expenses You figure earlier under dividing expenses And rental income depends on whether You are considered to be using The dwelling unit as a home So you use a dwelling unit as a home During the tax year If you use it for personal purposes More than the greater of One 14 days Two 10% of the total days It is rented to others At a fair rental price So now you've got this allocation Between personal use and the business Or rental use And then you've got this added kind of Threshold that you've got to be careful of With having it qualify as the home Which could have different types of Limitations in terms of the calculation Here on the rental expenses So for example if I went back on over If I go down here you can see that The losses in particular, in particular This is going to kick in when we've got Those losses that take place Are limited to the 25,000 Basically with the form 8582 Which is the losses For the passive activity rules So if I go back on over and say Okay let's go to the schedule E And let's bring this up To something that's going to make it Over the threshold to make it a home So let's say it was like 60 days So now I'm going to go back on over here And you can see the software is telling us You've got the vacation home Calculation and they basically Adjust the calculations here We're not being limited by the same Kind of passive activity rules We've got other basically rules That would be our limitations Which I won't dive into now But that's the other thing that you Want to be careful of You could take a look at the Publication and look at the worksheet Number five, worksheet for figuring Rental deductions for a dwelling unit Used as a home and dive into there For more detail if applicable To help you with your calculations I'm in Publication 527 Residential Rental Property Taxure 2021 You can find on the IRS website IRS.gov, IRS.gov