Department of the Treasury

Internal Revenue Service

Publication 527

Cat. No. 15052W

Residential

Rental

Property

(Including Rental of 

Vacation Homes)

For use in preparing

2023 Returns

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Contents

What’s New ............................... 2

Reminders ............................... 2

Introduction .............................. 2

Chapter 1. Rental Income and Expenses (If No 

Personal Use of Dwelling) ................ 3

Rental Income .......................... 4

Rental Expenses ........................ 5

Chapter 2. Depreciation of Rental Property ..... 8

The Basics ............................. 9

Special Depreciation Allowance ............. 12

MACRS Depreciation .................... 12

Claiming the Correct Amount of Depreciation ... 18

Chapter 3. Reporting Rental Income, 

Expenses, and Losses .................. 18

Which Forms To Use ..................... 18

Limits on Rental Losses .................. 19

At-Risk Rules ....................... 20

Passive Activity Limits ................. 20

Casualties and Thefts .................... 22

Example ............................. 22

Chapter 4. Special Situations ............... 23

Condominiums ......................... 23

Cooperatives .......................... 23

Property Changed to Rental Use ............ 24

Renting Part of Property .................. 25

Not Rented for Profit ..................... 25

Example—Property Changed to Rental Use .... 25

Chapter 5. Personal Use of Dwelling Unit 

(Including Vacation Home) ............... 26

Dividing Expenses ...................... 27

Dwelling Unit Used as a Home .............. 27

Reporting Income and Deductions ........... 29

Worksheet 5-1. Worksheet for Figuring 

Rental Deductions for a Dwelling Unit Used 

as a Home .......................... 30

Chapter 6. How To Get Tax Help ............. 33

Index .................................. 37

Future Developments

For the latest information about developments related to 

Pub. 527, such as legislation enacted after it was 

published, go to IRS.gov/Pub527.

Jan 24, 2024
What’s New

Standard mileage rate. For 2023, the standard mileage 

rate for the cost of operating your car, van, pickup, or 

panel truck increased to 65.5 cents a mile.

Section 179 deduction dollar limits. For tax years beginning in 2023, the maximum section 179 expense deduction is $1,160,000. This limit is reduced by the amount 

by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000.

Qualified paid sick leave and qualified paid family 

leave payroll tax credit. Generally, the credit for qualified sick and family leave wages, as enacted under the 

Families First Coronavirus Response Act (FFCRA) and 

amended and extended by the COVID-related Tax Relief 

Act of 2020, for leave taken after March 31, 2020, and before April 1, 2021, and the credit for qualified sick and family leave wages under sections 3131, 3132, and 3133 of 

the Internal Revenue Code, as enacted under the American Rescue Plan Act of 2021 (the ARP), for leave taken 

after March 31, 2021, and before October 1, 2021, have 

expired. However, employers that pay qualified sick and 

family leave wages in 2023 for leave taken after March 31, 

2020, and before October 1, 2021, are eligible to claim a 

credit for qualified sick and family leave wages in the quarter of 2023 in which the qualified wages were paid. For 

more information, see Form 941, lines 11b, 11d, 13c, and 

13e; and Form 944, lines 8b, 8d, 10d, and 10f. You must 

include the full amount (both the refundable and nonrefundable portions) of the credit for qualified sick and family 

leave wages in gross income on line 3 or 4 of Schedule E 

(Form 1040), as applicable, for the tax year that includes 

the last day of any calendar quarter with respect to which 

a credit is allowed. A credit is available only if the leave 

was taken after March 31, 2020, and before October 1, 

2021, and only after the qualified leave wages were paid, 

which might, under certain circumstances, not occur until 

a quarter after September 30, 2021, including qualifying 

quarterly payments made during 2023. Accordingly, all 

lines related to qualified sick and family leave wages remain on the employment tax returns for 2023.

Note. A credit is available only if the leave was taken 

after March 31, 2020, and before October 1, 2021, and 

only after the qualified leave wages were paid, which 

might, under certain circumstances, not occur until a quarter after September 30, 2021, including qualifying quarterly payments made during 2023. Accordingly, all lines related to qualified sick and family leave wages remain on 

the employment tax returns for 2023.

Commercial clean vehicle credit. Businesses that buy 

a qualified commercial clean vehicle may qualify for a 

clean vehicle tax credit. See Form 8936 and its instructions for more information.

Bonus depreciation. The bonus depreciation deduction 

under section 168(k) begins its phaseout in 2023 with a 

reduction of the applicable limit from 100% to 80%.

Reminders

Net Investment Income Tax (NIIT). You may be subject 

to the 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 to figure this tax. For 

more information on NIIT, go to IRS.gov/NIIT.

Form 7205, Energy Efficient Commercial Buildings 

Deduction. This form and its separate instructions are 

used to claim the section 179D deduction for qualifying 

energy efficient commercial building expense(s).

Excess business loss limitation. If you report a loss on 

line 26, 32, 37, or 39 of your Schedule E (Form 1040), you 

may be subject to a business loss limitation. The disallowed loss resulting from the limitation will not be reflected 

on line 26, 32, 37, or 39 of your Schedule E. Instead, use 

Form 461 to determine the amount of your excess business loss, which will be included as income on Schedule 

1 (Form 1040), line 8p. Any disallowed loss resulting from 

this limitation will be treated as a net operating loss that 

must be carried forward and deducted in a subsequent 

year.

See Form 461 and its instructions for details on the excess business loss limitation.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for 

Missing & Exploited Children® (NCMEC). 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.

Chapter 1 discusses rental-for-profit activity in which 

there is no personal use of the property. It examines some 

common types of rental income and when each is reported, as well as some common 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 much it can be depreciated.

Chapter 3 covers the reporting of your rental income 

and deductions, including casualties and thefts, limitations 

on losses, and claiming the correct amount of depreciation.

2 Publication 527 (2023)
Chapter 4 discusses special rental situations. These include condominiums, cooperatives, property changed to 

rental use, renting only part of your property, and a 

not-for-profit rental activity.

Chapter 5 discusses the rules for rental income and expenses when there is also personal use of the dwelling 

unit, such as a vacation home.

Finally, chapter 6 explains how to get tax help from the 

IRS.

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 

Pub. 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 Pub. 523.

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 

Revenue Procedure 2008-16, 2008-10 I.R.B. 547, available at IRS.gov/irb/2008-10_IRB#RP-2008-16. For more information on like-kind exchanges, see chapter 1 of Pub. 

544.

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

editions.

You can send us comments through IRS.gov/

FormComments. Or, you can write to the Internal Revenue 

Service, Tax Forms and Publications, 1111 Constitution 

Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will 

consider your comments and suggestions as we revise 

our tax forms, instructions, and publications. Don’t send 

tax questions, tax returns, or payments to the above address.

Getting answers to your tax questions. If you have 

a tax question not answered by this publication or the How 

To Get Tax Help section at the end of this publication, go 

to the IRS Interactive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the search 

feature or viewing the categories listed.

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Useful Items

You may want to see:

Publication

Travel, Gift, and Car Expenses

Selling Your Home

Depreciating Property Placed in Service Before 

1987

Sales and Other Dispositions of Assets

Casualties, Disasters, and Thefts

Basis of Assets

Passive Activity and At-Risk Rules

How To Depreciate Property

Form (and Instructions)

Excess Business Loss Limitation

Depreciation and Amortization

Election To Postpone Determination as To 

Whether the Presumption Applies That an 

Activity Is Engaged in for Profit

Energy Efficient Commercial Buildings 

Deduction

Passive Activity Loss Limitations

Net Investment Income Tax—Individuals, 

Estates, and Trusts

cdu(o) Supplemental Income 

and Loss

1.

Rental Income and 

Expenses (If No Personal 

Use of Dwelling)

This chapter discusses the various types of rental income 

and expenses for a residential rental activity with no personal use of the dwelling. Generally, each year, you will report all income and deduct all out-of-pocket expenses in 

full. The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of 

years, and is discussed in chapter 2.

 463

 523

 534

 544

 547

 551

 925

 946

 461 

 4562

 5213

 7205

 8582

 8960

 Schedule E (Form 1040)

Publication 527 (2023) Chapter 1 Rental Income and Expenses (If No Personal 

Use of Dwelling)

3
If your rental income is from property you also use 

personally or rent to someone at less than a fair 

rental price, first read chapter 5.

Rental Income

In most cases, you must include in your gross income all 

amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property. It 

isn’t limited to amounts you receive as normal rental payments.

When To Report

When you report rental income on your tax return generally depends on whether you are a cash or an accrual basis taxpayer. Most individual taxpayers use the cash 

method.

Cash method. You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. 

You constructively receive income when it is made available to you, for example, by being credited to your bank account.

Accrual method. If you are an accrual basis taxpayer, 

you generally report income when you earn it, rather than 

when you receive it. You generally deduct your expenses 

when you incur them, rather than when you pay them.

More information. See Pub. 538, Accounting Periods 

and Methods, for more information about when you constructively receive income and accrual methods of accounting.

Types of Income

The following are common types of rental income.

Advance rent. Advance rent is any amount you receive 

before the period that it covers. Include advance rent in 

your rental income in the year you receive it regardless of 

the period covered or the method of accounting you use.

Example. On March 18, 2023, you signed a 10-year 

lease to rent your property. During 2023, you received 

$9,600 for the first year's rent and $9,600 as rent for the 

last year of the lease. You must include $19,200 in your 

rental income in 2023.

Canceling a lease. If your tenant pays you to cancel a 

lease, the amount you receive is rent. Include the payment 

in your rental income in the year you receive it regardless 

of your method of accounting.

Expenses paid by tenant. If your tenant pays any of 

your expenses, those payments are rental income. Because you must include this amount in income, you can 

also deduct the expenses if they are deductible rental expenses. For more information, see Rental Expenses, later.

CAUTION

!

Example 1. Your tenant pays the water and sewage 

bill for your rental property and deducts the amount from 

the normal rent payment. Under the terms of the lease, 

your tenant doesn’t have to pay this bill. Include the utility 

bill paid by the tenant and any amount received as a rent 

payment in your rental income. You can deduct the utility 

payment made by your tenant as a rental expense.

Example 2. While you are out of town, the furnace in 

your rental property stops working. Your tenant pays for 

the necessary repairs and deducts the repair bill from the 

rent payment. Include the repair bill paid by the tenant and 

any amount received as a rent payment in your rental income. You can deduct the repair payment made by your 

tenant as a rental expense.

Property or services. If you receive property or services 

as rent, instead of money, include the fair market value 

(FMV) of the property or services in your rental income.

If the services are provided at an agreed upon or specified price, that price is the FMV unless there is evidence to 

the contrary.

Example. Your tenant is a house painter. He offers to 

paint your rental property instead of paying 2 months rent. 

You accept his offer.

Include in your rental income the amount the tenant 

would have paid for 2 months rent. You can deduct that 

same amount as a rental expense for painting your property.

Security deposits. Don’t include a security deposit in 

your income when you receive it if you plan to return it to 

your tenant at the end of the lease. But if you keep part or 

all of the security deposit during any year because your 

tenant doesn’t live up to the terms of the lease, include the 

amount you keep in your income in that year.

If an amount called a security deposit is to be used as a 

final payment of rent, it is advance rent. Include it in your 

income when you receive it.

Other Sources of Rental Income

Lease with option to buy. If the rental agreement gives 

your tenant the right to buy your rental property, the payments you receive under the agreement are generally 

rental income. If your tenant exercises the right to buy the 

property, the payments you receive for the period after the 

date of sale are considered part of the selling price.

Part interest. If you own a part interest in rental property, 

you must report your part of the rental income from the 

property.

Rental of property also used as your home. If you rent 

property that you also use as your home and you rent it 

less than 15 days during the tax year, don’t include the 

rent you receive in your income. Also, expenses from this 

activity are not considered rental expenses. For more information, see Used as a home but rented less than 15 

days under Reporting Income and Deductions in chapter 5.

4 Chapter 1 Rental Income and Expenses (If No Personal 

Use of Dwelling)

Publication 527 (2023)
Rental Expenses

In most cases, the expenses of renting your property, such 

as maintenance, insurance, taxes, and interest, can be 

deducted from your rental income.

Personal use of rental property. If you sometimes use 

your rental property for personal purposes, you must divide your expenses between rental and personal use. 

Also, your rental expense deductions may be limited. See 

chapter 5.

Part interest. If you own a part interest in rental property, 

you can deduct expenses you paid according to your percentage of ownership.

Example. Roger owns a one-half undivided interest in 

a rental house. Last year, he paid $968 for necessary repairs on the property. Roger can deduct $484 (50% (0.50) 

× $968) as a rental expense. He is entitled to reimbursement for the remaining half from the co-owner.

When To Deduct

You generally deduct your rental expenses in the year you 

pay them.

If you use the accrual method, see Pub. 538 for more 

information.

Types of Expenses

Listed below are the most common rental expenses.

• Advertising.

• Auto and travel expenses.

• Cleaning and maintenance.

• Commissions.

• Depreciation.

• Insurance.

• Interest (other).

• Legal and other professional fees.

• Local transportation expenses.

• Management fees.

• Mortgage interest paid to banks, etc.

• Points.

• Rental payments.

• Repairs.

• Taxes.

• Utilities.

Some of these expenses, as well as other less common 

ones, are discussed below.

Depreciation. Depreciation is a capital expense. It is the 

mechanism for recovering your cost in an income-producing property and must be taken over the expected life of 

the property.

You can begin to depreciate rental property when it is 

ready and available for rent. See Placed in Service under 

When Does Depreciation Begin and End? in chapter 2.

Insurance premiums paid in advance. If you pay an insurance premium for more than 1 year in advance, you 

can’t deduct the total premium in the year you pay it. For 

each year of coverage, you can deduct only the part of the 

premium payment that applies to that year.

Interest expense. You can deduct mortgage interest you 

pay on your rental property. When you refinance a rental 

property for more than the previous outstanding balance, 

the portion of the interest allocable to loan proceeds not 

related to rental use generally can’t be deducted as a 

rental expense.

Expenses paid to obtain a mortgage. Certain expenses you pay to obtain a mortgage on your rental property can’t be deducted as interest. These expenses, which 

include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in 

the property.

Form 1098, Mortgage Interest Statement. If you 

paid $600 or more of mortgage interest on your rental 

property to any one person, you should receive a Form 

1098 or similar statement showing the interest you paid for 

the year. If you and at least one other person (other than 

your spouse if you file a joint return) were liable for, and 

paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on 

Schedule E (Form 1040), line 13. Attach a statement to 

your return showing the name and address of the other 

person. On the dotted line next to line 13, enter “See attached.”

Legal and other professional fees. You can deduct, as 

a rental expense, legal and other professional expenses 

such as tax return preparation fees you paid to prepare 

Schedule E, Part I. For example, on your 2023 Schedule E, you can deduct fees paid in 2023 to prepare Part I 

of your 2022 Schedule E. You can also deduct, as a rental 

expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to 

your rental activities.

Local benefit taxes. In most cases, you can’t deduct 

charges for local benefits that increase the value of your 

property, such as charges for putting in streets, sidewalks, 

or water and sewer systems. These charges are nondepreciable capital expenditures and must be added to the 

basis of your property. However, you can deduct local 

benefit taxes that are for maintaining, repairing, or paying 

interest charges for the benefits.

Local transportation expenses. You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to 

manage, conserve, or maintain your rental property. However, transportation expenses incurred to travel between 

Publication 527 (2023) Chapter 1 Rental Income and Expenses (If No Personal 

Use of Dwelling)

5
your home and a rental property generally constitute nondeductible commuting costs unless you use your home as 

your principal place of business. See Pub. 587, Business 

Use of Your Home, for information on determining if your 

home office qualifies as a principal place of business.

Generally, if you use your personal car, pickup truck, or 

light van for rental activities, you can deduct the expenses 

using one of two methods: actual expenses or the standard mileage rate. For 2023, the standard mileage rate is 

65.5 cents a mile. For more information, see chapter 4 of 

Pub. 463. 

To deduct car expenses under either method, you 

must keep records that follow the rules in chapter 5 of Pub. 463. In addition, you must complete 

Form 4562, Part V, and attach it to your tax return.

Pre-rental expenses. You can deduct your ordinary and 

necessary expenses for managing, conserving, or maintaining rental property from the time you make it available 

for rent.

Rental of equipment. You can deduct the rent you pay 

for equipment that you use for rental purposes. However, 

in some cases, lease contracts are actually purchase contracts. If so, you can’t deduct these payments. You can recover the cost of purchased equipment through depreciation.

Rental of property. You can deduct the rent you pay for 

property that you use for rental purposes. If you buy a 

leasehold for rental purposes, you can deduct an equal 

part of the cost each year over the term of the lease.

Travel expenses. You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to 

manage, conserve, or maintain your rental property. You 

must properly allocate your expenses between rental and 

nonrental activities. You can’t deduct the cost of traveling 

away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered 

by taking depreciation. For information on travel expenses, 

see chapter 1 of Pub. 463.

To deduct travel expenses, you must keep records 

that follow the rules in chapter 5 of Pub. 463.

Uncollected rent. If you are a cash basis taxpayer, don’t 

deduct uncollected rent. Because you haven’t included it 

in your income, it’s not deductible.

If you use an accrual method, report income when you 

earn it. If you are unable to collect the rent, you may be 

able to deduct it as a business bad debt. See section 166 

and its regulations for more information about business 

bad debts.

Vacant rental property. If you hold property for rental 

purposes, you may be able to deduct your ordinary and 

necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the 

RECORDS RECORDS

property is vacant. However, you can’t deduct any loss of 

rental income for the period the property is vacant.

Vacant while listed for sale. If you sell property you 

held for rental purposes, you can deduct the ordinary and 

necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property isn’t held 

out and available for rent while listed for sale, the expenses aren’t deductible rental expenses.

Points

The term “points” is often used to describe some of the 

charges paid, or treated as paid, by a borrower to take out 

a loan or a mortgage. These charges are also called loan 

origination fees, maximum loan charges, or premium 

charges. Any of these charges (points) that are solely for 

the use of money are interest. Because points are prepaid 

interest, you generally can’t deduct the full amount in the 

year paid, but must deduct the interest over the term of the 

loan.

The method used to figure the amount of points you 

can deduct each year follows the original issue discount 

(OID) rules. In this case, points paid (or treated as paid 

(such as seller paid points)), by a borrower to a lender increase OID which is the excess of:

• Stated redemption price at maturity (generally the stated principal amount of the mortgage loan) over

• Issue price (generally the amount borrowed reduced 

by the points).

Note. For more detailed information to determine OID 

on a mortgage loan, including how to determine the stated 

redemption price at maturity and issue price of a mortgage loan, see the regulations under section 1273.

The first step to determine the amount of your deduction for the points is to determine whether your total OID 

on the mortgage loan, including the OID resulting from the 

points is de minimis. If the OID isn’t de minimis, you must 

use the constant-yield method to figure how much you can 

deduct.

De minimis OID. The OID is de minimis if it is less than 

one-fourth of 1% (0.0025) of the stated redemption price 

at maturity multiplied by the number of full years from the 

date of original issue to maturity (term of the loan).

If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct 

each year.

• On a constant-yield basis over the term of the loan.

• On a straight line basis over the term of the loan.

• In proportion to stated interest payments.

• In its entirety at maturity of the loan.

You make this choice by deducting the OID (including the 

points) in a manner consistent with the method chosen on 

your timely filed tax return for the tax year in which the 

loan is issued.

6 Chapter 1 Rental Income and Expenses (If No Personal 

Use of Dwelling)

Publication 527 (2023)
Example. Carol took out a $100,000 mortgage loan on 

January 1, 2023, to buy a house she will use as a rental 

during 2023. The loan is to be repaid over 30 years. The 

loan requires interest payable each year at a fixed rate. 

During 2023, Carol paid $10,000 of mortgage interest 

(stated interest) to the lender. When the loan was made, 

she paid $1,500 in points to the lender. The amount of the 

OID on the loan is $1,500, which is the difference between 

the stated redemption price at maturity of $100,000 less 

the issue price of $98,500 (the amount borrowed of 

$100,000 minus the points paid of $1,500). Carol determines that the points (OID) she paid are de minimis based 

on the following computation.

Stated redemption price at maturity (principal amount 

of the loan in this case) .................. $100,000

Multiplied by: The term of the 

loan in complete years ................... × 30

Multiplied by .......................... × 0.0025

De minimis amount ..................... $  7,500

The points (OID) she paid ($1,500) are less than the de 

minimis amount ($7,500). Therefore, Carol has de minimis 

OID and she can choose one of the four ways discussed 

earlier to figure the amount she can deduct each year. Under the straight line method, she can deduct $50 each 

year for 30 years.

Constant-yield method. If the OID (including the points) 

isn’t de minimis, you must use the constant-yield method 

to figure how much you can deduct each year.

You figure your deduction for the first year in the following manner.

1. Determine the issue price of the loan. If you paid 

points on the loan, the issue price is generally the difference between the amount borrowed and the points.

2. Multiply the result in (1) by the yield to maturity (defined later).

3. Subtract any qualified stated interest payments (defined later) from the result in (2). This is the OID you 

can deduct in the first year.

Yield to maturity (YTM). This rate is generally shown 

in the literature you receive from your lender. If you don’t 

have this information, consult your lender or tax advisor. In 

general, the YTM is the discount rate that, when used in 

computing the present value of all principal and interest 

payments, produces an amount equal to the issue price of 

the loan.

Qualified stated interest (QSI). In general, this is the 

stated interest that is unconditionally payable in cash or 

property (other than another debt instrument of the borrower) at least annually over the term of the loan at a fixed 

rate.

Example—Year 1. The facts are the same as in the 

previous example. The YTM on Carol's loan is 10.2467%, 

compounded annually.

She figured the amount of points (OID) she could deduct in 2023 as follows.

Amount borrowed ...................... $100,000

Minus: Points (OID) ..................... – 1,500

Issue price of the loan .................... $ 98,500

Multiplied by: YTM ...................... × 0.102467

Total ............................... 10,093

Minus: QSI ........................... – 10,000

Points (OID) deductible in 2023 ............. $     93

To figure your deduction in any subsequent year, you 

start with the adjusted issue price. To get the adjusted issue price, add to the issue price figured in Year 1 any OID 

previously deducted. Then, follow steps (2) and (3), earlier.

Example—Year 2. Carol figured the deduction for 

2024 as follows.

Issue price ........................... $98,500

Plus: Points (OID) deducted 

in 2023 ............................ + 93

Adjusted issue price ..................... $98,593

Multiplied by: YTM ...................... × 0.102467

Total ............................... 10,103

Minus: QSI ........................... – 10,000

Points (OID) deductible in 2024 ............. $ 103

Loan or mortgage ends. If your loan or mortgage ends, 

you may be able to deduct any remaining points (OID) in 

the tax year in which the loan or mortgage ends. A loan or 

mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. However, if the refinancing is with 

the same lender, the remaining points (OID) generally 

aren’t deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan.

Points when loan refinance is more than the previous 

outstanding balance. When you refinance a rental property for more than the previous outstanding balance, the 

portion of the points allocable to loan proceeds not related to rental use generally can’t be deducted as a rental 

expense.

Example. You refinanced a loan with a balance of 

$100,000. The amount of the new loan was $120,000. You 

used the additional $20,000 to purchase a car. The points 

allocable to the $20,000 would be treated as nondeductible personal interest.

Repairs and Improvements

Generally, an expense for repairing or maintaining your 

rental property may be deducted if you aren’t required to 

capitalize the expense.

Improvements. You must capitalize any expense you 

pay to improve your rental property. An expense is for an 

improvement if it results in a betterment to your property, 

restores your property, or adapts your property to a new or 

different use. Table 1-1 shows examples of many improvements.

Publication 527 (2023) Chapter 1 Rental Income and Expenses (If No Personal 

Use of Dwelling)

7
Betterments. Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your 

property, or increasing the capacity, strength, or quality of 

your property.

Restoration. Expenses that may be for restoration include expenses for replacing a substantial structural part 

of your property, repairing damage to your property after 

you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a 

like-new condition.

Adaptation. Expenses that may be for adaptation include expenses for altering your property to a use that isn’t 

consistent with the intended ordinary use of your property 

when you began renting the property.

De minimis safe harbor for tangible property. If 

you elect this de minimis safe harbor for your rental activity 

for the tax year, you aren’t required to capitalize the de 

minimis costs of acquiring or producing certain real and 

tangible personal property and may deduct these 

amounts as rental expenses on line 19 of Schedule E. For 

more information on electing and using the de minimis 

safe harbor for tangible property, see Tangible Property 

Regulations-Frequently Asked Questions.

Safe harbor for routine maintenance. If you determine that your cost was for an improvement to a building 

or equipment, you may still be able to deduct your cost under the routine maintenance safe harbor. See Tangible 

Property Regulations-Frequently Asked Questions for 

more information.

Separate the costs of repairs and improvements, 

and keep accurate records. You will need to know 

the cost of improvements when you sell or depreciate your property.

The expenses you capitalize for improving your property can generally be depreciated as if the improvement 

were separate property.

RECORDS

2.

Depreciation of Rental 

Property

You recover the cost of income-producing property 

through yearly tax deductions. You do this by depreciating 

the property; that is, by deducting some of the cost each 

year on your tax return.

Three factors determine how much depreciation you can 

deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation 

method used. You can’t simply deduct your mortgage or 

principal payments, or the cost of furniture, fixtures, and 

equipment, as an expense.

You can deduct depreciation only on the part of your property used for rental purposes. Depreciation reduces your 

basis for figuring gain or loss on a later sale or exchange.

You may have to use Form 4562 to figure and report your 

depreciation. See Which Forms To Use in chapter 3. Also, 

see Pub. 946.

Section 179 deduction. The section 179 deduction is a 

means of recovering part or all of the cost of certain qualifying property in the year you place the property in service. It is separate from your depreciation deduction. See 

chapter 2 of Pub. 946 for more information about claiming 

this deduction.

Alternative minimum tax (AMT). If you use accelerated 

depreciation, you may be subject to the AMT. Accelerated 

depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a 

straight line method (same deduction each year).

The prescribed depreciation methods for rental real estate aren’t accelerated, so the depreciation deduction isn’t 

adjusted for the AMT. However, accelerated methods are 

generally used for other property connected with rental 

activities (for example, appliances and wall-to-wall 

carpeting).

Examples of Improvements

Additions

Bedroom

Bathroom

Deck

Garage

Porch

Patio

Lawn & Grounds

Landscaping

Driveway

Walkway

Fence

Retaining wall

Sprinkler system

Swimming pool

Miscellaneous

Storm windows, doors

New roof

Central vacuum

Wiring upgrades

Satellite dish

Security system 

Heating & Air Conditioning

Heating system

Central air conditioning

Furnace

Duct work

Central humidifier

Filtration system

Plumbing

Septic system

Water heater

Soft water system

Filtration system

Interior Improvements

Built-in appliances

Kitchen modernization

Flooring

Wall-to-wall carpeting

Insulation

Attic

Walls, floor

Pipes, duct work

Table 1-1.

8 Chapter 2 Depreciation of Rental Property Publication 527 (2023)
To find out if you are subject to the AMT, see the Instructions for Form 6251.

The Basics

The following section discusses the information you will 

need to have about the rental property and the decisions 

to be made before figuring your depreciation deduction.

What Rental Property Can Be 

Depreciated?

You can depreciate your property if it meets all the following requirements.

• You own the property.

• You use the property in your business or income-producing activity (such as rental property).

• The property has a determinable useful life.

• The property is expected to last more than 1 year.

Property you own. To claim depreciation, you must usually be the owner of the property. You are considered to be 

the owner of the property even if it’s subject to a debt.

Rented property. Generally, if you pay rent for property, you can’t depreciate that property. Usually, only the 

owner can depreciate it. However, if you make permanent 

improvements to leased property, you may be able to depreciate the improvements. See Additions or improvements to property, later in this chapter, under Recovery 

Periods Under GDS.

Cooperative apartments. If you are a tenant-stockholder in a cooperative housing corporation and rent your 

cooperative apartment to others, you can depreciate your 

stock in the corporation. See chapter 4.

Property having a determinable useful life. To be depreciable, your property must have a determinable useful 

life. This means that it must be something that wears out, 

decays, gets used up, becomes obsolete, or loses its 

value from natural causes.

What Rental Property Can’t Be Depreciated?

Certain property can’t be depreciated. This includes land 

and certain excepted property.

Land. You can’t depreciate the cost of land because land 

generally doesn’t wear out, become obsolete, or get used 

up. But if it does, the loss is accounted for upon disposition. The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and can’t be 

depreciated. You may, however, be able to depreciate certain land preparation costs if the costs are so closely associated with other depreciable property that you can determine a life for them along with the life of the associated 

property.

Example. You built a new house to use as a rental and 

paid for grading, clearing, seeding, and planting bushes 

and trees. Some of the bushes and trees were planted 

right next to the house, while others were planted around 

the outer border of the lot. If you replace the house, you 

would have to destroy the bushes and trees right next to it. 

These bushes and trees are closely associated with the 

house, so they have a determinable useful life. Therefore, 

you can depreciate them. Add your other land preparation 

costs to the basis of your land because they have no determinable life and you can’t depreciate them.

Excepted property. Even if the property meets all the requirements listed earlier under What Rental Property Can 

Be Depreciated, you can’t depreciate the following property.

• Property placed in service and disposed of (or taken 

out of business use) in the same year.

• Equipment used to build capital improvements. You 

must add otherwise allowable depreciation on the 

equipment during the period of construction to the basis of your improvements.

For more information, see chapter 1 of Pub. 946.

When Does Depreciation Begin and 

End?

You begin to depreciate your rental property when you 

place it in service for the production of income. You stop 

depreciating it either when you have fully recovered your 

cost or other basis, or when you retire it from service, 

whichever happens first.

Placed in Service

You place property in service in a rental activity when it is 

ready and available for a specific use in that activity. Even 

if you aren’t using the property, it is in service when it is 

ready and available for its specific use.

Example 1. On November 22 of last year, you purchased a dishwasher for your rental property. The appliance was delivered on December 7, but wasn’t installed 

and ready for use until January 3 of this year. Because the 

dishwasher wasn’t ready for use last year, it isn’t considered placed in service until this year.

If the appliance had been installed and ready for use 

when it was delivered in December of last year, it would 

have been considered placed in service in December, 

even if it wasn’t actually used until this year.

Example 2. On April 6, you purchased a house to use 

as residential rental property. You made extensive repairs 

to the house and had it ready for rent on July 5. You began 

to advertise the house for rent in July and actually rented it 

beginning September 1. The house is considered placed 

in service in July when it was ready and available for rent. 

You can begin to depreciate the house in July.

Publication 527 (2023) Chapter 2 Depreciation of Rental Property 9
Example 3. You moved from your home in July. During 

August and September, you made several repairs to the 

house. On October 1, you listed the property for rent with 

a real estate company, which rented it on December 1. 

The property is considered placed in service on October 

1, the date when it was available for rent.

Conversion to business use. If you place property in 

service in a personal activity, you can’t claim depreciation. 

However, if you change the property's use to business or 

the production of income, you can begin to depreciate it at 

the time of the change. You place the property in service 

for business or income-producing use on the date of the 

change.

Example. You bought a house and used it as your personal home several years before you converted it to rental 

property. Although its specific use was personal and no 

depreciation was allowable, you placed the home in service when you began using it as your home. You can begin 

to claim depreciation in the year you converted it to rental 

property because at that time its use changed to the production of income.

Idle Property

Continue to claim a deduction for depreciation on property 

used in your rental activity even if it is temporarily idle (not 

in use). For example, if you must make repairs after a tenant moves out, you still depreciate the rental property during the time it isn’t available for rent.

Cost or Other Basis Fully Recovered

You must stop depreciating property when the total of your 

yearly depreciation deductions equals your cost or other 

basis of your property. For this purpose, your yearly depreciation deductions include any depreciation that you were 

allowed to claim, even if you didn’t claim it. See Basis of 

Depreciable Property, later.

Retired From Service

You stop depreciating property when you retire it from 

service, even if you haven’t fully recovered its cost or other 

basis. You retire property from service when you permanently withdraw it from use in a trade or business or from 

use in the production of income because of any of the following events.

• You sell or exchange the property.

• You convert the property to personal use.

• You abandon the property.

• The property is destroyed.

Depreciation Methods

Generally, you must use the Modified Accelerated Cost 

Recovery System (MACRS) to depreciate residential 

rental property placed in service after 1986.

If you placed rental property in service before 1987, you 

are using one of the following methods.

• Accelerated Cost Recovery System (ACRS) for property placed in service after 1980 but before 1987.

• Straight line or declining balance method over the 

useful life of property placed in service before 1981.

See MACRS Depreciation, later, for more information.

Rental property placed in service before 2023. Continue to use the same method of figuring depreciation that 

you used in the past.

Use of real property changed. Generally, you must use 

MACRS to depreciate real property that you acquired for 

personal use before 1987 and changed to business or income-producing use after 1986. This includes your residence that you changed to rental use. See Property 

Owned or Used in 1986 in chapter 1 of Pub. 946 for those 

situations in which MACRS isn’t allowed.

Improvements made after 1986. Treat an improvement 

made after 1986 to property you placed in service before 

1987 as separate depreciable property. As a result, you 

can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise 

qualifies for MACRS depreciation. For more information 

about improvements, see Additions or improvements to 

property, later in this chapter, under Recovery Periods Under GDS.

This publication discusses MACRS depreciation 

only. If you need information about depreciating 

property placed in service before 1987, see Pub. 

534.

Basis of Depreciable Property

The basis of property used in a rental activity is generally 

its adjusted basis when you place it in service in that activity. This is its cost or other basis when you acquired it, adjusted for certain items occurring before you place it in 

service in the rental activity.

If you depreciate your property under MACRS, you may 

also have to reduce your basis by certain deductions and 

credits with respect to the property.

Basis and adjusted basis are explained in the following 

discussions.

If you used the property for personal purposes before changing it to rental use, its basis for depreciation is the lesser of its adjusted basis or its FMV 

when you change it to rental use. See Basis of Property 

Changed to Rental Use in chapter 4.

Cost Basis

The basis of property you buy is usually its cost. The cost 

is the amount you pay for it in cash, in debt obligation, in 

CAUTION

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CAUTION

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10 Chapter 2 Depreciation of Rental Property Publication 527 (2023)
other property, or in services. Your cost also includes 

amounts you pay for:

• Sales tax charged on the purchase (but see Exception 

next),

• Freight charges to obtain the property, and

• Installation and testing charges.

Exception. If you deducted state and local general 

sales taxes as an itemized deduction on Schedule A 

(Form 1040), don’t include as part of your cost basis the 

sales taxes you deducted. Such taxes were deductible before 1987 and after 2003.

Loans with low or no interest. If you buy property on 

any payment plan that charges little or no interest, the basis of your property is your stated purchase price, less the 

amount considered to be unstated interest. See Unstated 

Interest and Original Issue Discount (OID) in Pub. 537, Installment Sales.

Real property. If you buy real property, such as a building and land, certain fees and other expenses you pay are 

part of your cost basis in the property.

Real estate taxes. If you buy real property and agree 

to pay real estate taxes on it that were owed by the seller 

and the seller doesn’t reimburse you, the taxes you pay 

are treated as part of your basis in the property. You can’t 

deduct them as taxes paid.

If you reimburse the seller for real estate taxes the 

seller paid for you, you can usually deduct that amount. 

Don’t include that amount in your basis in the property.

Settlement fees and other costs. The following settlement fees and closing costs for buying the property are 

part of your basis in the property.

• Abstract fees.

• Charges for installing utility services.

• Legal fees.

• Recording fees.

• Surveys.

• Transfer taxes.

• Title insurance.

• Any amounts the seller owes that you agree to pay, 

such as back taxes or interest, recording or mortgage 

fees, charges for improvements or repairs, and sales 

commissions.

The following are settlement fees and closing costs you 

can’t include in your basis in the property.

1. Fire insurance premiums.

2. Rent or other charges relating to occupancy of the 

property before closing.

3. Charges connected with getting or refinancing a loan, 

such as:

a. Points (discount points, loan origination fees),

b. Loan assumption fees,

c. Cost of a credit report, and

d. Fees for an appraisal required by a lender.

Also, don’t include amounts placed in escrow for the future payment of items such as taxes and insurance.

Assumption of a mortgage. If you buy property and 

become liable for an existing mortgage on the property, 

your basis is the amount you pay for the property plus the 

amount remaining to be paid on the mortgage.

Example. You buy a building for $60,000 cash and assume a mortgage of $240,000 on it. Your basis is 

$300,000.

Separating cost of land and buildings. If you buy 

buildings and your cost includes the cost of the land on 

which they stand, you must divide the cost between the 

land and the buildings to figure the basis for depreciation 

of the buildings. The part of the cost that you allocate to 

each asset is the ratio of the FMV of that asset to the FMV 

of the whole property at the time you buy it.

If you aren’t certain of the FMVs of the land and the 

buildings, you can divide the cost between them based on 

their assessed values for real estate tax purposes.

Example. You buy a house and land for $200,000. The 

purchase contract doesn’t specify how much of the purchase price is for the house and how much is for the land.

The latest real estate tax assessment on the property 

was based on an assessed value of $160,000, of which 

$136,000 was for the house and $24,000 was for the land.

You can allocate 85% ($136,000 ÷ $160,000) of the 

purchase price to the house and 15% ($24,000 ÷ 

$160,000) of the purchase price to the land.

Your basis in the house is $170,000 (85% of $200,000) 

and your basis in the land is $30,000 (15% of $200,000).

Basis Other Than Cost

You can’t use cost as a basis for property that you received:

• In return for services you performed;

• In an exchange for other property;

• As a gift;

• From your spouse, or from your former spouse as the 

result of a divorce; or

• As an inheritance.

If you received property in one of these ways, see Pub. 

551 for information on how to figure your basis.

Adjusted Basis

To figure your property's basis for depreciation, you may 

have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you 

placed it in service for business or the production of income. The result of these adjustments to the basis is the 

adjusted basis.

Publication 527 (2023) Chapter 2 Depreciation of Rental Property 11
Increases to basis. You must increase the basis of any 

property by the cost of all items properly added to a capital account. These include the following.

• The cost of any additions or improvements made before placing your property into service as a rental that 

have a useful life of more than 1 year.

• Amounts spent after a casualty to restore the damaged property.

• The cost of extending utility service lines to the property.

• Legal fees, such as the cost of defending and perfecting title, or settling zoning issues.

Additions or improvements. Add to the basis of your 

property the amount an addition or improvement actually 

costs you, including any amount you borrowed to make 

the addition or improvement. This includes all direct costs, 

such as material and labor, but doesn’t include your own 

labor. It also includes all expenses related to the addition 

or improvement.

For example, if you had an architect draw up plans for 

remodeling your property, the architect's fee is a part of 

the cost of the remodeling. Or, if you had your lot surveyed 

to put up a fence, the cost of the survey is a part of the 

cost of the fence.

Keep separate accounts for depreciable additions or 

improvements made after you place the property in service in your rental activity. For information on depreciating 

additions or improvements, see Additions or improvements to property, later in this chapter, under Recovery 

Periods Under GDS.

The cost of landscaping improvements is usually 

treated as an addition to the basis of the land, 

which isn’t depreciable. However, see What 

Rental Property Can’t Be Depreciated, earlier.

Assessments for local improvements. Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the 

basis of the property. For example, if your city installs 

curbing on the street in front of your house, and assesses 

you and your neighbors for its cost, you must add the assessment to the basis of your property. Also, add the cost 

of legal fees paid to obtain a decrease in an assessment 

levied against property to pay for local improvements. You 

can’t deduct these items as taxes or depreciate them.

However, you can deduct assessments for the purpose 

of maintenance or repairs or for the purpose of meeting interest charges related to the improvements. Don’t add 

them to your basis in the property.

Deducting vs. capitalizing costs. Don’t add to your 

basis costs you can deduct as current expenses. However, there are certain costs you can choose either to deduct or to capitalize. If you capitalize these costs, include 

them in your basis. If you deduct them, don’t include them 

in your basis.

The costs you may choose to deduct or capitalize include carrying charges, such as interest and taxes, that 

you must pay to own property.

CAUTION

!

For more information about deducting or capitalizing 

costs and how to make the election, see Carrying 

Charges in sections 263(A) and 266.

Decreases to basis. You must decrease the basis of 

your property by any items that represent a return of your 

cost. These include the following.

• Insurance or other payment you receive as the result 

of a casualty or theft loss. 

• Casualty loss not covered by insurance for which you 

took a deduction.

• Amount(s) you receive for granting an easement. 

• Residential energy credits you were allowed before 

1986 or after 2005 if you added the cost of the energy 

items to the basis of your home. 

• Exclusion from income of subsidies for energy conservation measures.

• Special depreciation allowance or a section 179 deduction claimed on qualified property.

• Depreciation you deducted or could have deducted on 

your tax returns under the method of depreciation you 

chose. If you didn’t deduct enough or deducted too 

much in any year, see Depreciation under Decreases 

to Basis in Pub. 551.

If your rental property was previously used as your main 

home, you must also decrease the basis by the following.

• Gain you postponed from the sale of your main home 

before May 7, 1997, if the replacement home was converted to your rental property.

• District of Columbia first-time homebuyer credit allowed on the purchase of your main home after August 4, 1997, and before January 1, 2012.

• Amount of qualified principal residence indebtedness 

discharged on or after January 1, 2007.

Special Depreciation 

Allowance

For 2023, some properties used in connection with residential real property activities may qualify for a special depreciation allowance. This allowance is figured before you 

figure your regular depreciation deduction. See chapter 3 

of Pub. 946 for details. Also, see the instructions for Form 

4562, line 14.

If you qualify for, but choose not to take, a special depreciation allowance, you must attach a statement to your 

return. The details of this election are in chapter 3 of Pub. 

946 and the instructions for Form 4562, line 14.

MACRS Depreciation

Most business and investment property placed in service 

after 1986 is depreciated using MACRS. 

12 Chapter 2 Depreciation of Rental Property Publication 527 (2023)
This section explains how to determine which MACRS 

depreciation system applies to your property. It also discusses other information you need to know before you can 

figure depreciation under MACRS. This information includes the property's:

• Recovery class,

• Applicable recovery period,

• Convention,

• Placed-in-service date,

• Basis for depreciation, and

• Depreciation method.

Depreciation Systems

MACRS consists of two systems that determine how you 

depreciate your property—the General Depreciation System (GDS) and the Alternative Depreciation System 

(ADS). You must use GDS unless you are specifically required by law to use ADS or you elect to use ADS.

Excluded Property

You can’t use MACRS for certain personal property (such 

as furniture or appliances) placed in service in your rental 

property in 2023 if it had been previously placed in service 

before 1987, when MACRS became effective.

In most cases, personal property is excluded from 

MACRS if you (or a person related to you) owned or used 

it in 1986 or if your tenant is a person (or someone related 

to the person) who owned or used it in 1986. However, the 

property isn’t excluded if your 2023 deduction under 

MACRS (using a half-year convention) is less than the deduction you would have under ACRS. For more information, see What Method Can You Use To Depreciate Your 

Property? in chapter 1 of Pub. 946.

Electing ADS

If you choose, you can use the ADS method for most 

property. Under ADS, you use the straight line method of 

depreciation.

The election of ADS for one item in a class of property 

generally applies to all property in that class placed in 

service during the tax year of the election. However, the 

election applies on a property-by-property basis for residential rental property and nonresidential real property.

If you choose to use ADS for your residential rental 

property, the election must be made in the first year the 

property is placed in service. Once you make this election, 

you can never revoke it.

For property placed in service during 2023, you make 

the election to use ADS by entering the depreciation on 

Form 4562, Part III, Section C, line 20c.

Property Classes Under GDS

Each item of property that can be depreciated under 

MACRS is assigned to a property class, determined by its 

class life. The property class generally determines the depreciation method, recovery period, and convention.

The property classes under GDS are: 

• 3-year property,

• 5-year property,

• 7-year property,

• 10-year property,

• 15-year property,

• 20-year property,

• Nonresidential real property, and

• Residential rental property.

Under MACRS, property that you placed in service during 2023 in your rental activities generally falls into one of 

the following classes.

• 5-year property. This class includes computers and 

peripheral equipment, office machinery (typewriters, 

calculators, copiers, etc.), automobiles, and light 

trucks.

This class also includes appliances, carpeting, and 

furniture used in a residential rental real estate activity.

Depreciation is limited on automobiles and other 

property used for transportation and property of a type 

generally used for entertainment, recreation, or 

amusement. See chapter 5 of Pub. 946.

• 7-year property. This class includes office furniture 

and equipment (desks, file cabinets, and similar 

items). This class also includes any property that 

doesn’t have a class life and that hasn’t been designated by law as being in any other class.

• 15-year property. This class includes roads, fences, 

and shrubbery (if depreciable).

• Residential rental property. This class includes any 

real property that is a rental building or structure (including a mobile home) for which 80% or more of the 

gross rental income for the tax year is from dwelling 

units. It doesn’t include a unit in a hotel, motel, inn, or 

other establishment where more than half of the units 

are used on a transient basis. If you live in any part of 

the building or structure, the gross rental income includes the fair rental value of the part you live in. 

The other property classes generally don’t apply 

to property used in rental activities. These classes 

aren’t discussed in this publication. See Pub. 946 

for more information.

Recovery Periods Under GDS

The recovery period of property is the number of years 

over which you recover its cost or other basis. The 

CAUTION

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Publication 527 (2023) Chapter 2 Depreciation of Rental Property 13
recovery periods are generally longer under ADS than 

GDS.

The recovery period of property depends on its property class. Under GDS, the recovery period of an asset is 

generally the same as its property class.

Class lives and recovery periods for most assets are 

listed in Appendix B of Pub. 946. See Table 2-1 for recovery periods of property commonly used in residential 

rental activities.

Additions or improvements to property. Treat additions or improvements you make to your depreciable 

rental property as separate property items for depreciation 

purposes.

The property class and recovery period of the addition 

or improvement are the ones that would apply to the original property if you had placed it in service at the same 

time as the addition or improvement.

The recovery period for an addition or improvement to 

property begins on the later of:

• The date the addition or improvement is placed in 

service, or

• The date the property to which the addition or improvement was made is placed in service.

Example. You own a residential rental house that you 

have been renting since 1999 and depreciating under 

ACRS. You built an addition onto the house and placed it 

in service in 2023. You must use MACRS for the addition. 

Under GDS, the addition is depreciated as residential 

rental property over 27.5 years.

Conventions

A convention is a method established under MACRS to 

set the beginning and end of the recovery period. The 

convention you use determines the number of months for 

which you can claim depreciation in the year you place 

MACRS Recovery Periods for Property Used in

Rental Activities

Table 2-1.

Keep for Your Records

MACRS Recovery Period 

Type of Property

General

Depreciation

System

Alternative

Depreciation

System 

Computers and their peripheral equipment ........................................ 5 years 5 years

Office machinery, such as:

• Typewriters

• Calculators

• Copiers ............................... ............................... 5 years 6 years

Automobiles .............................................................. 5 years 5 years

Light trucks ............................................................... 5 years 5 years

Appliances, such as:

• Stoves

• Refrigerators ............................. ............................. 5 years 9 years

Carpets .................................................................. 5 years 9 years

Furniture used in rental property ................................................ 5 years 9 years

Office furniture and equipment, such as:

• Desks

• Files ................................ ................................ 7 years 10 years

Any property that doesn’t have a class life and that hasn’t been designated by law as being in any 

other class ............................................................... 7 years 12 years

Roads ................................................................... 15 years 20 years

Shrubbery ................................................................ 15 years 20 years

Fences .................................................................. 15 years 20 years

Residential rental property (buildings or structures) and structural components such as furnaces, 

waterpipes, venting, etc. ...................................................... 27.5 years 30 years1

Additions and improvements, such as a new roof .................................... The same recovery period as that of the property 

to which the addition or improvement is made, 

determined as if the property were placed in 

service at the same time as the addition or 

improvement.

1

 40 years for property placed in service before January 1, 2018. However, the ADS recovery period for residential rental property placed in service before January 1, 

2018, is 30 years if the property is held by an electing real property trade or business (as defined in section 163(j)(7)(B)) and section 168(g)(1)(A), (B), (C), (D), or (E) 

did not apply to the property before January 1, 2018. 

14 Chapter 2 Depreciation of Rental Property Publication 527 (2023)
property in service and in the year you dispose of the 

property.

Mid-month convention. A mid-month convention is 

used for all residential rental property and nonresidential 

real property. Under this convention, you treat all property 

placed in service, or disposed of, during any month as 

placed in service, or disposed of, at the midpoint of that 

month.

Mid-quarter convention. A mid-quarter convention must 

be used if the mid-month convention doesn’t apply and 

the total depreciable basis of MACRS property placed in 

service in the last 3 months of a tax year (excluding nonresidential real property, residential rental property, and 

property placed in service and disposed of in the same 

year) is more than 40% of the total basis of all such property you place in service during the year.

Under this convention, you treat all property placed in 

service, or disposed of, during any quarter of a tax year as 

placed in service, or disposed of, at the midpoint of the 

quarter.

Example. During the tax year, you purchased the following items to use in your rental property. You elect not to 

claim the special depreciation allowance discussed earlier.

• A dishwasher for $400 that you placed in service in 

January.

• Used furniture for $100 that you placed in service in 

September.

• A refrigerator for $800 that you placed in service in 

October.

You use the calendar year as your tax year. The total basis 

of all property placed in service that year is $1,300. The 

$800 basis of the refrigerator placed in service during the 

last 3 months of your tax year exceeds $520 (40% × 

$1,300). You must use the mid-quarter convention instead 

of the half-year convention for all three items.

Half-year convention. The half-year convention is used 

if neither the mid-quarter convention nor the mid-month 

convention applies. Under this convention, you treat all 

property placed in service, or disposed of, during a tax 

year as placed in service, or disposed of, at the midpoint 

of that tax year.

If this convention applies, you deduct a half year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.

Figuring Your Depreciation Deduction

You can figure your MACRS depreciation deduction in one 

of two ways. The deduction is substantially the same both 

ways. You can figure the deduction using either:

• The depreciation method and convention that apply 

over the recovery period of the property, or

• The percentage from the MACRS percentage tables.

In this publication, we will use the percentage tables. 

For instructions on how to compute the deduction, see 

chapter 4 of Pub. 946.

Residential rental property. You must use the straight 

line method and a mid-month convention for residential 

rental property. In the first year that you claim depreciation 

for residential rental property, you can claim depreciation 

only for the number of months the property is in use. Use 

the mid-month convention (explained under Conventions, 

earlier).

5-, 7-, or 15-year property. For property in the 5- or 

7-year class, use the 200% declining balance (DB) 

method and a half-year convention. However, in limited 

cases, you must use the mid-quarter convention, if it applies. For property in the 15-year class, use the 150% DB 

method and a half-year convention, unless the mid-quarter convention applies.

You can also choose to use the 150% DB method for 

property in the 5- or 7-year class. The choice to use the 

150% method for one item in a class of property applies to 

all property in that class that is placed in service during 

the tax year of the election. You make this election on 

Form 4562. In Part III, column (f), enter “150 DB.” Once 

you make this election, you can’t change to another 

method.

If you use either the 200% or 150% DB method, figure 

your deduction using the straight line method in the first 

tax year that the use of the straight line method gives you 

an equal or larger deduction than the use of the 200% or 

150% DB method.

You can also choose to use the straight line method 

with a half-year or mid-quarter convention for 5-, 7-, or 

15-year property. The choice to use the straight line 

method for one item in a class of property applies to all 

property in that class that is placed in service during the 

tax year of the election. You elect the straight line method 

on Form 4562. In Part III, column (f), enter “S/L.” Once you 

make this election, you can’t change to another method.

MACRS Percentage Tables

You can use the percentages in Table 2-2 to compute annual depreciation under MACRS. The tables show the 

percentages for the first few years or until the change to 

the straight line method is made. See Appendix A of Pub. 

946 for complete tables. The percentages in Tables 2-2a, 

2-2b, and 2-2c make the change from using the DB 

method to the straight line method in the first tax year that 

the use of the straight line method gives you an equal or 

greater deduction than the use of the DB method.

If you elect to use the straight line method for 5-, 7-, or 

15-year property, or the 150% DB method for 5- or 7-year 

property, use the tables in Appendix A of Pub. 946.

How to use the percentage tables. You must apply the 

table rates to your property's unadjusted basis (defined 

later) each year of the recovery period.

Once you begin using a percentage table to figure depreciation, you must continue to use it for the entire 

Publication 527 (2023) Chapter 2 Depreciation of Rental Property 15
recovery period unless there is an adjustment to the basis 

of your property for a reason other than:

1. Depreciation allowed or allowable, or

2. An addition or improvement that is depreciated as a 

separate item of property.

If there is an adjustment for any reason other than (1) or 

(2), for example, because of a deductible casualty loss, 

you can no longer use the table. For the year of the adjustment and for the remaining recovery period, figure depreciation using the property's adjusted basis at the end of 

the year and the appropriate depreciation method, as explained earlier under Figuring Your Depreciation Deduction. See Figuring the Deduction Without Using the Tables 

in chapter 4 of Pub. 946.

Unadjusted basis. This is the same basis you would 

use to figure gain on a sale (see Basis of Depreciable 

Property, earlier), but without reducing your original basis 

by any MACRS depreciation taken in earlier years.

However, you do reduce your original basis by other 

amounts claimed on the property, including:

• Any amortization,

• Any section 179 deduction, and

• Any special depreciation allowance.

For more information, see chapter 4 of Pub. 946.

16 Chapter 2 Depreciation of Rental Property Publication 527 (2023)
Tables 2-2a, 2-2b, and 2-2c. The percentages in these 

tables take into account the half-year and mid-quarter 

conventions. Use Table 2-2a for 5-year property, Table 2-2b for 7-year property, and Table 2-2c for 15-year 

property. Use the percentage in the second column 

(half-year convention) unless you are required to use the 

mid-quarter convention (explained earlier). If you must use 

the mid-quarter convention, use the column that corresponds to the calendar year quarter in which you placed 

the property in service.

Example 1. You purchased a stove and refrigerator 

and placed them in service in June. Your basis in the stove 

is $600 and your basis in the refrigerator is $1,000. Both 

are 5-year property. Using the half-year convention column in Table 2-2a, the depreciation percentage for Year 1 

is 20%. For that year, your depreciation deduction is $120 

Table 2-2. Optional MACRS GDS Percentage Tables

a. MACRS 5-Year Property (200% DB)

Half-year convention Mid-quarter convention

Year First

quarter

Second

quarter

Third

quarter

Fourth

quarter

1

2

3

4

5

6

20.00%

32.00

19.20

11.52

11.52

5.76

35.00%

26.00

15.60

11.01

11.01

1.38

25.00%

30.00

18.00

11.37

11.37

4.26

15.00%

34.00

20.40

12.24

11.30

7.06

5.00%

38.00

22.80

13.68

10.94

9.58

b. MACRS 7-Year Property (200% DB)

Half-year convention Mid-quarter convention

Year First

quarter

Second

quarter

Third

quarter

Fourth

quarter

1

2

3

4

5

6

c. MACRS 15-Year Property (150% DB)

Half-year convention Mid-quarter convention

Year First

quarter

Second

quarter

Third

quarter

Fourth

quarter

1

2

3

4

5

6

d. Residential Rental Property-GDS (27.5-year S/L with mid-month convention)

14.29%

24.49

17.49

12.49

8.93

8.92

25.00%

21.43

15.31

10.93

8.75

8.74

17.85%

23.47

16.76

11.97

8.87

8.87

10.71%

25.51

18.22

13.02

9.30

8.85

3.57%

27.55

19.68

14.06

10.04

8.73

5.00%

9.50

8.55

7.70

6.93

6.23

8.75%

9.13

8.21

7.39

6.65

5.99

6.25%

9.38

8.44

7.59

6.83

6.15

3.75%

9.63

8.66

7.80

7.02

6.31

1.25%

9.88

8.89

8.00

7.20

6.48

Use the row for the month of the taxable year placed in service.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Jan.

Feb.

March

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

3.485% 3.636%

3.182

2.879

2.576

2.273

1.970

1.667

1.364

1.061

0.758

0.455

0.152

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636%

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636%

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636%

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636%

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

3.636

7 5.90 5.90 5.91 5.90 5.90

8 5.90 5.91 5.90 5.90 5.90

7 8.93 8.75 8.87 8.86 8.73

Publication 527 (2023) Chapter 2 Depreciation of Rental Property 17
($600 × 20% (0.20)) for the stove and $200 ($1,000 × 

20% (0.20)) for the refrigerator.

For Year 2, the depreciation percentage is 32%. That 

year's depreciation deduction will be $192 ($600 × 32% 

(0.32)) for the stove and $320 ($1,000 × 32% (0.32)) for 

the refrigerator.

Example 2. Assume the same facts as in Example 1, 

except you buy the refrigerator in October instead of June. 

Because the refrigerator was placed in service in the last 3 

months of the tax year, and its basis ($1,000) is more than 

40% of the total basis of all property placed in service during the year ($1,600 × 40% (0.40) = $640), you are required to use the mid-quarter convention to figure depreciation on both the stove and refrigerator.

Because you placed the refrigerator in service in October, you use the fourth quarter column of Table 2-2a and 

find the depreciation percentage for Year 1 is 5%. Your depreciation deduction for the refrigerator is $50 ($1,000 x 

5% (0.05)).

Because you placed the stove in service in June, you 

use the second quarter column of Table 2-2a and find the 

depreciation percentage for Year 1 is 25%. For that year, 

your depreciation deduction for the stove is $150 ($600 x 

25% (0.25)).

Table 2-2d. Use this table when you are using the GDS 

27.5-year option for residential rental property. Find the 

row for the month that you placed the property in service. 

Use the percentages listed for that month to figure your 

depreciation deduction. The mid-month convention is 

taken into account in the percentages shown in the table. 

Continue to use the same row (month) under the column 

for the appropriate year.

Example. You purchased a single family rental house 

for $185,000 and placed it in service on February 8. The 

sales contract showed that the building cost $160,000 and 

the land cost $25,000. Your basis for depreciation is its 

original cost, $160,000. This is the first year of service for 

your residential rental property and you decide to use 

GDS, which has a recovery period of 27.5 years. Using 

Table 2-2d, you find that the depreciation percentage for 

property placed in service in February of Year 1 is 

3.182%. That year's depreciation deduction is $5,091 

($160,000 x 3.182% (0.03182)).

Figuring MACRS Depreciation Under 

ADS

Table 2-1 shows the ADS recovery periods for property 

used in rental activities.

See Appendix B of Pub. 946 for other property. If your 

property isn’t listed in Appendix B, it is considered to have 

no class life. Under ADS, personal property with no class 

life is depreciated using a recovery period of 12 years.

Use the mid-month convention for residential rental 

property and nonresidential real property. For all other 

property, use the half-year or mid-quarter convention, as 

appropriate. 

See Pub. 946 for ADS depreciation tables.

Claiming the Correct Amount 

of Depreciation

You should claim the correct amount of depreciation each 

tax year. If you didn’t claim all the depreciation you were 

entitled to deduct, you must still reduce your basis in the 

property by the full amount of depreciation that you could 

have deducted. For more information, see Depreciation 

under Decreases to Basis in Pub. 551.

If you deducted an incorrect amount of depreciation for 

property in any year, you may be able to make a correction 

by filing Form 1040-X, Amended U.S. Individual Income 

Tax Return. If you aren’t allowed to make the correction on 

an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. See How Do You Correct Depreciation Deductions? 

in Pub. 946 for more information.

3.

Reporting Rental Income, 

Expenses, and Losses

Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). There are activities 

that don’t qualify to use Schedule E, such as when the activity isn’t engaged in to make a profit or when you provide 

substantial services in conjunction with the property.

There are also the limitations that may need to be applied 

if you have a net loss on Schedule E. There are two: (1) 

the limitation based on the amount of investment you have 

at risk in your rental activity, and (2) the special limits imposed on passive activities.

You may also have a gain or loss related to your rental 

property from a casualty or theft. This is considered separately from the income and expense information you report 

on Schedule E.

Which Forms To Use

The basic form for reporting residential rental income and 

expenses is Schedule E (Form 1040). However, don’t use 

that schedule to report a not-for-profit activity. See Not 

Rented for Profit, later, in chapter 4. There are also other 

rental situations in which forms other than Schedule E 

would be used.

18 Chapter 3 Reporting Rental Income, Expenses, and 

Losses

Publication 527 (2023)
Schedule E (Form 1040)

If you rent buildings, rooms, or apartments, and provide 

basic services such as heat and light, trash collection, 

etc., you normally report your rental income and expenses 

on Schedule E, Part I.

List your total income, expenses, and depreciation for 

each rental property. Be sure to enter the number of fair 

rental and personal-use days on line 2.

If you have more than three rental or royalty properties, 

complete and attach as many Schedules E as are needed 

to separately list all of the properties. However, fill in lines 

23a through 26 on only one Schedule E. The figures on 

lines 23a through 26 on that Schedule E should be the 

combined totals for all properties reported on your Schedules E.

On Schedule E, page 1, line 18, enter the depreciation 

you are claiming for each property. You may also need to 

attach Form 4562 to claim some or all of your depreciation. See Form 4562, later, for more information.

If you have a loss from your rental real estate activity, 

you may also need to complete one or both of the following forms.

• Form 6198, At-Risk Limitations. See At-Risk Rules, 

later. Also, see Pub. 925.

• Form 8582, Passive Activity Loss Limitations. See 

Passive Activity Limits, later.

Page 2 of Schedule E is used to report income or loss 

from partnerships, S corporations, estates, trusts, and real 

estate mortgage investment conduits. If you need to use 

page 2 of Schedule E and you have more than three rental 

or royalty properties, be sure to use page 2 of the same 

Schedule E you used to enter the combined totals for your 

rental activity on page 1. Also, include the amount from 

line 26 (Part I) in the “Total income or (loss)” on line 41 

(Part V).

Form 4562. You must complete and attach Form 4562 if 

you are claiming the following depreciation in your rental 

activity.

• Depreciation, including the special depreciation allowance, on property placed in service during 2023.

• Depreciation on listed property (such as a car), regardless of when it was placed in service.

Otherwise, figure your depreciation on your own worksheet. You don’t have to attach these computations to 

your return, but you should keep them in your records for 

future reference.

You may also need to attach Form 4562 if you are 

claiming a section 179 deduction, amortizing costs that 

began during 2023, or claiming any other deduction for a 

vehicle, including the standard mileage rate or lease expenses.

See Pub. 946 for information on preparing Form 4562.

Schedule C (Form 1040), Profit or 

Loss From Business

Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental 

is part of a trade or business as a real estate dealer.

Providing substantial services. If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid 

service, you report your rental income and expenses on 

Schedule C. Use Form 1065, U.S. Return of Partnership 

Income, if your rental activity is a partnership (including a 

partnership with your spouse unless it is a qualified joint 

venture). Substantial services don’t include the furnishing 

of heat and light, cleaning of public areas, trash collection, 

etc. For more information, see Pub. 334, Tax Guide for 

Small Business. Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 

1040), Self-Employment Tax. For a discussion of “substantial services,” see Real Estate Rents in chapter 5 of 

Pub. 334.

Qualified Joint Venture (QJV)

If you and your spouse each materially participate (see 

Material participation under Passive Activity Limits, later) 

as the only members of a jointly owned and operated real 

estate business, and you file a joint return for the tax year, 

you can make a joint election to be treated as a QJV instead of a partnership. This election, in most cases, won’t 

increase the total tax owed on the joint return, but it does 

give each of you credit for social security earnings on 

which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment 

tax.

If you make this election, you must report rental real estate income on Schedule E (or Schedule C, if you provide 

substantial services). You won’t be required to file Form 

1065 for any year the election is in effect. Rental real estate income generally isn’t included in net earnings from 

self-employment subject to self-employment tax and is 

generally subject to the passive activity limits.

If you and your spouse filed a Form 1065 for the year 

prior to the election, the partnership terminates at the end 

of the tax year immediately preceding the year the election 

takes effect.

For more information on QJVs, go to IRS.gov/QJV.

Limits on Rental Losses

If you have a loss from your rental real estate activity, two 

sets of rules may limit the amount of loss you can report 

on Schedule E. You must consider these rules in the order 

shown below. Both are discussed in this section.

1. At-risk rules. These rules are applied first if there is investment in your rental real estate activity for which 

Publication 527 (2023) Chapter 3 Reporting Rental Income, Expenses, and 

Losses

19
you aren’t at risk. This applies only if the real property 

was placed in service after 1986.

2. Passive activity limits. Generally, rental real estate activities are considered passive activities and losses 

aren’t deductible unless you have income from other 

passive activities to offset them. However, there are 

exceptions.

Excess business loss limitation. In addition to at-risk 

rules and passive activity limits, excess business loss 

rules apply to losses from all noncorporate trades or businesses. This business loss limitation is figured using Form 

461 after you complete your Schedule E. Any limitation to 

your loss resulting from these rules will not be reflected on 

your Schedule E. Instead, it will be added to your income 

on Form 1040 or 1040-SR and treated as a net operating 

loss that must be carried forward and deducted in a subsequent year.

At-Risk Rules

You may be subject to the at-risk rules if you have:

• A loss from an activity carried on as a trade or business or for the production of income, and

• Amounts invested in the activity for which you aren’t 

fully at risk.

Losses from holding real property (other than mineral 

property) placed in service before 1987 aren’t subject to 

the at-risk rules.

In most cases, any loss from an activity subject to the 

at-risk rules is allowed only to the extent of the total 

amount you have at risk in the activity at the end of the tax 

year. You are considered at risk in an activity to the extent 

of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for 

use in the activity. Any loss that is disallowed because of 

the at-risk limits is treated as a deduction from the same 

activity in the next tax year. See Pub. 925 for a discussion 

of the at-risk rules.

Form 6198. If you are subject to the at-risk rules, file 

Form 6198 with your tax return.

Passive Activity Limits

In most cases, all rental real estate activities (except those 

of certain real estate professionals, discussed later) are 

passive activities. For this purpose, a rental activity is an 

activity from which you receive income mainly for the use 

of tangible property, rather than for services. For a discussion of activities that aren’t considered rental activities, 

see Rental Activities in Pub. 925.

Deductions or losses from passive activities are limited. 

You generally can’t offset income, other than passive income, with losses from passive activities. Nor can you offset taxes on income, other than passive income, with 

credits resulting from passive activities. Any excess loss 

or credit is carried forward to the next tax year. Exceptions 

to the rules for figuring passive activity limits for personal 

use of a dwelling unit and for rental real estate with active 

participation are discussed later.

For a detailed discussion of these rules, see Pub. 925.

Real estate professionals. If you are a real estate professional, complete line 43 of Schedule E.

You qualify as a real estate professional for the tax year 

if you meet both of the following requirements.

• More than half of the personal services you perform in 

all trades or businesses during the tax year are performed in real property trades or businesses in which 

you materially participate.

• You perform more than 750 hours of services during 

the tax year in real property trades or businesses in 

which you materially participate.

If you qualify as a real estate professional, rental real estate activities in which you materially participated aren’t 

passive activities. For purposes of determining whether 

you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity 

unless you elect to treat all your interests in rental real estate as one activity.

Don’t count personal services you perform as an employee in real property trades or businesses unless you 

are a 5% owner of your employer. You are a 5% owner if 

you own (or are considered to own) more than 5% of your 

employer's outstanding stock, or capital or profits interest.

Don’t count your spouse's personal services to determine whether you met the requirements listed earlier to 

qualify as a real estate professional. However, you can 

count your spouse's participation in an activity in determining if you materially participated.

Real property trades or businesses. A real property 

trade or business is a trade or business that does any of 

the following with real property.

• Develops or redevelops it.

• Constructs or reconstructs it.

• Acquires it.

• Converts it.

• Rents or leases it.

• Operates or manages it.

• Brokers it.

Choice to treat all interests as one activity. If you 

were a real estate professional and had more than one 

rental real estate interest during the year, you can choose 

to treat all the interests as one activity. You can make this 

choice for any year that you qualify as a real estate professional. If you forgo making the choice for one year, you 

can still make it for a later year.

If you make the choice, it is binding for the tax year you 

make it and for any later year that you are a real estate 

professional. This is true even if you aren’t a real estate 

professional in any intervening year. (For that year, the exception for real estate professionals won’t apply in determining whether your activity is subject to the passive 

activity rules.)

20 Chapter 3 Reporting Rental Income, Expenses, and 

Losses

Publication 527 (2023)
See the Instructions for Schedule E for information 

about making this choice.

Material participation. Generally, you materially participated in an activity for the tax year if you were involved in 

its operations on a regular, continuous, and substantial 

basis during the year. For details, see Pub. 925 or the Instructions for Schedule C.

Participating spouse. If you are married, determine 

whether you materially participated in an activity by also 

counting any participation in the activity by your spouse 

during the year. Do this even if your spouse owns no interest in the activity or files a separate return for the year.

Form 8582. You may have to complete Form 8582 to figure the amount of any passive activity loss for the current 

tax year for all activities and the amount of the passive activity loss allowed on your tax return. See Form 8582 not 

required, later in this chapter, to determine if you must 

complete Form 8582.

If you are required to complete Form 8582 and are also 

subject to the at-risk rules, include the amount from Form 

6198, line 21 (deductible loss), in column (b) of Form 

8582, Worksheet 1 or 2, as required.

Exception for Personal Use of Dwelling Unit

If you used the rental property as a home during the year, 

any income, deductions, gain, or loss allocable to such 

use is not to be taken into account for purposes of the 

passive activity loss limitation. Instead, follow the rules explained in chapter 5.

Exception for Rental Real Estate With Active 

Participation

If you or your spouse actively participated in a passive 

rental real estate activity, you may be able to deduct up to 

$25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you may be able to offset credits 

from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.

Example. You are single and have $40,000 in wages, 

$2,000 of passive income from a limited partnership, and 

$3,500 of passive loss from a rental real estate activity in 

which you actively participated. $2,000 of your $3,500 

loss offsets your passive income. The remaining $1,500 

loss can be deducted from your $40,000 wages.

The special allowance isn’t available if you were 

married, lived with your spouse at any time during 

the year, and are filing a separate return.

Active participation. You actively participated in a rental 

real estate activity if you (and your spouse) owned at least 

10% of the rental property and you made management 

decisions or arranged for others to provide services (such 

as repairs) in a significant and bona fide sense. ManageCAUTION

!

ment decisions that may count as active participation include approving new tenants, deciding on rental terms, 

approving expenditures, and other similar decisions.

Example. You are single and had the following income 

and losses during the tax year.

Salary ............................ $42,300

Dividends .......................... 300

Interest ............................ 1,400

Rental loss ......................... (4,000 )

The rental loss was from the rental of a house you 

owned. You had advertised and rented the house to the 

current tenant yourself. You also collected the rents, which 

usually came by mail. You made or contracted out all repairs.

Although the rental loss is from a passive activity, because you actively participated in the rental property management, you can use the entire $4,000 loss to offset your 

other income.

Maximum special allowance. The maximum special allowance is:

• $25,000 for single individuals and married individuals 

filing a joint return for the tax year,

• $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and

• $25,000 for a qualifying estate reduced by the special 

allowance for which the surviving spouse qualified.

If your MAGI is $100,000 or less ($50,000 or less if 

married filing separately), you can deduct your loss up to 

the amount specified above. If your MAGI is more than 

$100,000 (more than $50,000 if married filing separately), 

your special allowance is limited to 50% of the difference 

between $150,000 ($75,000 if married filing separately) 

and your MAGI.

Generally, if your MAGI is $150,000 or more ($75,000 

or more if you are married filing separately), there is no 

special allowance.

Modified adjusted gross income (MAGI). This is 

your adjusted gross income from Form 1040, 1040-SR, or 

1040-NR, line 11, figured without taking into account:

1. The taxable amount of social security or equivalent 

tier 1 railroad retirement benefits,

2. The deductible contributions to traditional individual 

retirement accounts (IRAs) and section 501(c)(18) 

pension plans,

3. The exclusion from income of interest from series EE 

and I U.S. savings bonds used to pay higher educational expenses,

4. The exclusion of amounts received under an employer's adoption assistance program,

5. Any passive activity income or loss included on Form 

8582,

6. Any rental real estate loss allowed to real estate professionals,

Publication 527 (2023) Chapter 3 Reporting Rental Income, Expenses, and 

Losses

21
7. Any overall loss from a publicly traded partnership 

(see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582),

8. The deduction allowed for one-half of self-employment tax,

9. The deduction allowed for interest paid on student 

loans, and

10. The deduction allowed for foreign-derived intangible 

income and global intangible low-taxed income.

Form 8582 not required. Don’t complete Form 8582 if 

you meet all of the following conditions.

• Your only passive activities were rental real estate activities in which you actively participated.

• Your overall net loss from these activities is $25,000 or 

less ($12,500 or less if married filing separately and 

you lived apart from your spouse all year).

• If married filing separately, you lived apart from your 

spouse all year.

• You have no prior year unallowed losses from these 

(or any other passive) activities.

• You have no current or prior year unallowed credits 

from passive activities.

• Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your 

spouse all year).

• You don’t hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate 

or a trust.

If you meet all of the conditions listed above, your rental 

real estate activities aren’t limited by the passive activity 

rules and you don’t have to complete Form 8582. On lines 

23a through 23e of your Schedule E, enter the applicable 

amounts.

Casualties and Thefts

As a result of a casualty or theft, you may have a loss related to your rental property. You may be able to deduct the 

loss on your income tax return.

Casualty. This is the damage, destruction, or loss of 

property resulting from an identifiable event that is sudden, unexpected, or unusual. Such events include a 

storm, fire, or earthquake.

Theft. This is defined as the unlawful taking and removing of your money or property with the intent to deprive 

you of it.

Gain from casualty or theft. It is also possible to have a 

gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the 

property. Generally, you must report this gain. However, 

under certain circumstances, you may defer paying tax by 

choosing to postpone reporting the gain. To do this, you 

must generally buy replacement property within 2 years 

after the close of the first tax year in which any part of your 

gain is realized. In certain circumstances, the replacement 

period can be greater than 2 years; see Replacement Period in Pub. 547 for more information. The cost of the replacement property must be equal to or more than the net 

insurance or other payment you received.

More information. For information on business and nonbusiness casualty and theft losses, see Pub. 547.

How to report. If you had a casualty or theft that involved 

property used in your rental activity, figure the net gain or 

loss in Section B of Form 4684, Casualties and Thefts. 

Follow the Instructions for Form 4684 for where to carry 

your net gain or loss.

Example

In February 2018, you bought a rental house for $135,000 

(house $120,000 and land $15,000) and immediately began renting it out. In 2023, you rented it all 12 months for a 

monthly rental fee of $1,125. In addition to your rental income of $13,500 (12 x $1,125), you had the following expenses.

Mortgage interest ......................... $8,000

Fire insurance (1-year policy) ................. 250

Miscellaneous repairs ...................... 400

Real estate taxes imposed and paid ............. 500

Maintenance ............................ 200

You depreciate the residential rental property under 

MACRS GDS. This means using the straight line method 

over a recovery period of 27.5 years.

You use Table 2-2d to find your depreciation percentage. Because you placed the property in service in February 2018, you continue to use that row of Table 2-2d. For 

Year 6, the rate is 3.636%.

You figure your net rental income or loss for the house 

as follows.

Total rental income received 

($1,125 × 12) ........................... $13,500

Minus: Expenses

Mortgage interest ................ $8,000

Fire insurance .................. 250

Miscellaneous repairs ............. 400

Real estate taxes ................ 500

Maintenance ................... 200

Total expenses ......................... 9,350

Balance ............................... $4,150

Minus: Depreciation ($120,000 x 3.636% 

(0.03636)) ............................ 4,363

Net rental (loss) for house .................. ($213)

You had a net loss for the year. Because you actively 

participated in your passive rental real estate activity and 

your loss was less than $25,000, you can deduct the loss 

22 Chapter 3 Reporting Rental Income, Expenses, and 

Losses

Publication 527 (2023)
on your return. You also meet all of the requirements for 

not having to file Form 8582. You use Schedule E, Part I, 

to report your rental income and expenses. You enter your 

income, expenses, and depreciation for the house in the 

column for Property A and enter your loss on line 22. Form 

4562 isn’t required.

4.

Special Situations

This chapter discusses some rental real estate activities 

that are subject to additional rules.

Condominiums

A condominium is most often a dwelling unit in a multi-unit 

building, but can also take other forms, such as a townhouse or garden apartment.

If you own a condominium, you also own a share of the 

common elements, such as land, lobbies, elevators, and 

service areas. You and the other condominium owners 

may pay dues or assessments to a special corporation 

that is organized to take care of the common elements.

Special rules apply if you rent your condominium to others. You can deduct as rental expenses all the expenses 

discussed in chapters 1 and 2. In addition, you can deduct 

any dues or assessments paid for maintenance of the 

common elements.

You can’t deduct special assessments you pay to a 

condominium management corporation for improvements. 

However, you may be able to recover your share of the 

cost of any improvement by taking depreciation.

Cooperatives

If you live in a cooperative, you don’t own your apartment. 

Instead, a corporation owns the apartments and you are a 

tenant-stockholder in the cooperative housing corporation. If you rent your apartment to others, you can usually 

deduct, as a rental expense, all the maintenance fees you 

pay to the cooperative housing corporation.

In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in 

the corporation.

Depreciation

You will be depreciating your stock in the corporation 

rather than the apartment itself. Figure your depreciation 

deduction as follows.

1. Figure the depreciation for all the depreciable real 

property owned by the corporation. (Depreciation 

methods are discussed in chapter 2 of this publication 

and Pub. 946.) If you bought your cooperative stock 

after its first offering, figure the depreciable basis of 

this property as follows.

a. Multiply your cost per share by the total number of 

outstanding shares.

b. Add to the amount figured in (a) any mortgage 

debt on the property on the date you bought the 

stock.

c. Subtract from the amount figured in (b) any mortgage debt that isn’t for the depreciable real property, such as the part for the land.

2. Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be 

rented but can’t be lived in by tenant-stockholders.

3. Divide the number of your shares of stock by the total 

number of shares outstanding, including any shares 

held by the corporation.

4. Multiply the result of (2) by the percentage you figured 

in (3). This is your depreciation on the stock.

Your depreciation deduction for the year can’t be more 

than the part of your adjusted basis (defined in chapter 2) 

in the stock of the corporation that is allocable to your 

rental property.

Payments added to capital account. Payments earmarked for a capital asset or improvement, or otherwise 

charged to the corporation's capital account, are added to 

the basis of your stock in the corporation. For example, 

you can’t deduct a payment used to pave a community 

parking lot, install a new roof, or pay the principal of the 

corporation's mortgage.

Treat as a capital cost the amount you were assessed 

for capital items. This can’t be more than the amount by 

which your payments to the corporation exceeded your 

share of the corporation's mortgage interest and real estate taxes.

Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects 

those expenses for your apartment. Otherwise, figure your 

share in the following manner.

1. Divide the number of your shares of stock by the total 

number of shares outstanding, including any shares 

held by the corporation.

2. Multiply the corporation's deductible interest by the 

number you figured in (1). This is your share of the interest.

Publication 527 (2023) Chapter 4 Special Situations 23
3. Multiply the corporation's deductible taxes by the 

number you figured in (1). This is your share of the 

taxes.

Property Changed to Rental 

Use

If you change your home or other property (or a part of it) 

to rental use at any time other than the beginning of your 

tax year, you must divide yearly expenses, such as taxes 

and insurance, between rental use and personal use.

You can deduct as rental expenses only the part of the 

expense that is for the part of the year the property was 

used or held for rental purposes.

You can’t deduct depreciation or insurance for the part 

of the year the property was held for personal use. However, you can include the home mortgage interest and real 

estate tax expenses for the part of the year the property 

was held for personal use when figuring the amount you 

can deduct on Schedule A.

Example. Your tax year is the calendar year. You 

moved from your home in May and started renting it out on 

June 1. You can deduct as rental expenses seven-twelfths 

of your yearly expenses, such as taxes and insurance.

Starting with June, you can deduct as rental expenses 

the amounts you pay for items generally billed monthly, 

such as utilities.

When figuring depreciation, treat the property as 

placed in service on June 1.

Basis of Property Changed to Rental 

Use

When you change property you held for personal use to 

rental use (for example, you rent your former home), the 

basis for depreciation will be the lesser of the FMV or adjusted basis on the date of conversion.

FMV. This is the price at which the property would change 

hands between a willing buyer and a willing seller, neither 

having to buy or sell, and both having reasonable knowledge of all the relevant facts. Sales of similar property, on 

or about the same date, may be helpful in figuring the 

FMV of the property.

Figuring the basis. The basis for depreciation is the 

lesser of:

• The FMV of the property on the date you changed it to 

rental use; or

• Your adjusted basis on the date of the change—that 

is, your original cost or other basis of the property, plus 

the cost of permanent additions or improvements 

since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income 

tax returns and other decreases to basis. For other increases and decreases to basis, see Adjusted Basis 

in chapter 2.

Example. You originally built a house for $140,000 on 

a lot that cost you $14,000, which you used as your home 

for many years. Before changing the property to rental use 

this year, you added $28,000 of permanent improvements 

to the house and claimed a $3,500 casualty loss deduction for damage to the house. Part of the improvements 

qualified for a $500 residential energy credit, which you 

claimed on a prior year tax return. Because land isn’t depreciable, you can only include the cost of the house 

when figuring the basis for depreciation.

The adjusted basis of the house at the time of the 

change in its use was $164,000 ($140,000 + $28,000 − 

$3,500 − $500).

On the date of the change in use, your property had an 

FMV of $168,000, of which $21,000 was for the land and 

$147,000 was for the house.

The basis for depreciation on the house is the FMV on 

the date of the change ($147,000) because it is less than 

your adjusted basis ($164,000).

Cooperatives

If you change your cooperative apartment to rental use, 

figure your allowable depreciation as explained earlier. 

(Depreciation methods are discussed in chapter 2 of this 

publication and Pub. 946.) The basis of all the depreciable 

real property owned by the cooperative housing corporation is the smaller of the following amounts.

• The FMV of the property on the date you change your 

apartment to rental use. This is considered to be the 

same as the corporation's adjusted basis minus 

straight line depreciation, unless this value is unrealistic.

• The corporation's adjusted basis in the property on 

that date. Don’t subtract depreciation when figuring 

the corporation's adjusted basis.

If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation, earlier. The FMV of the 

property is considered to be the same as the corporation's 

adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic.

Figuring the Depreciation Deduction

To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Generally, that will be MACRS for any conversion after 1986. 

Treat the property as placed in service on the conversion 

date.

Example. Your converted residence (see the previous 

example under Figuring the basis, earlier) was available 

for rent on August 1. Using Table 2-2d (see chapter 2), the 

percentage for Year 1 beginning in August is 1.364% and 

the depreciation deduction for Year 1 is $2,005 ($147,000 

× 1.364% (0.01364)).

24 Chapter 4 Special Situations Publication 527 (2023)
Renting Part of Property

If you rent part of your property, you must divide certain 

expenses between the part of the property used for rental 

purposes and the part of the property used for personal 

purposes, as though you actually had two separate pieces 

of property.

You can deduct the expenses related to the part of the 

property used for rental purposes, such as home mortgage interest and real estate taxes, as rental expenses on 

Schedule E (Form 1040). You can also deduct as rental 

expenses a portion of other expenses that are normally 

nondeductible personal expenses, such as expenses for 

electricity or painting the outside of the house.

There is no change in the types of expenses deductible 

for the personal-use part of your property. Generally, these 

expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040).

You can’t deduct any part of the cost of the first phone 

line even if your tenants have unlimited use of it.

You don’t have to divide the expenses that belong only 

to the rental part of your property. For example, if you paint 

a room that you rent or pay premiums for liability insurance 

in connection with renting a room in your home, your entire 

cost is a rental expense. If you install a second phone line 

strictly for your tenant's use, all the cost of the second line 

is deductible as a rental expense. You can deduct depreciation on the part of the house used for rental purposes as 

well as on the furniture and equipment you use for rental 

purposes.

How to divide expenses. If an expense is for both rental 

use and personal use, such as mortgage interest or heat 

for the entire house, you must divide the expense between 

rental use and personal use. You can use any reasonable 

method for dividing the expense. It may be reasonable to 

divide the cost of some items (for example, water) based 

on the number of people using them. The two most common methods for dividing an expense are (1) the number 

of rooms in your home, and (2) the square footage of your 

home.

Example. You rent a room in your house. The room is 

12 × 15 feet, or 180 square feet. Your entire house has 

1,800 square feet of floor space. You can deduct as a 

rental expense 10% of any expense that must be divided 

between rental use and personal use. If your heating bill 

for the year for the entire house was $600, $60 ($600 × 

10% (0.10)) is a rental expense. The balance, $540, is a 

personal expense that you can’t deduct.

Duplex. A common situation is the duplex where you live 

in one unit and rent out the other. Certain expenses apply 

to the entire property, such as mortgage interest and real 

estate taxes, and must be split to determine rental and 

personal expenses.

Example. You own a duplex and live in one half, renting out the other half. Both units are approximately the 

same size. Last year, you paid a total of $10,000 mortgage 

interest and $2,000 real estate taxes for the entire property. You can deduct $5,000 mortgage interest and $1,000 

real estate taxes on Schedule E. If you itemize your deductions, include the other $5,000 mortgage interest and 

$1,000 real estate taxes when figuring the amount you can 

deduct on Schedule A.

Not Rented for Profit

If you don’t rent your property to make a profit, you can’t 

deduct rental expenses in excess of the amount of your 

rental income. You can’t deduct a loss or carry forward to 

the next year any rental expenses that are more than your 

rental income for the year.

Where to report. Report your not-for-profit rental income 

on Schedule 1 (Form 1040), line 8j. If you itemize your deductions, include your mortgage interest (if you use the 

property as your main home or second home), real estate 

taxes, and casualty losses from your not-for-profit rental 

activity when figuring the amount you can deduct on 

Schedule A.

Presumption of profit. If your rental income is more than 

your rental expenses for at least 3 years out of a period of 

5 consecutive years, you are presumed to be renting your 

property to make a profit.

Postponing decision. If you are starting your rental 

activity and don’t have 3 years showing a profit, you can 

elect to have the presumption made after you have the 5 

years of experience required by the test. You may choose 

to postpone the decision of whether the rental is for profit 

by filing Form 5213. You must file Form 5213 within 3 

years after the due date of your return (determined without 

extensions) for the year in which you first carried on the 

activity or, if earlier, within 60 days after receiving written 

notice from the IRS proposing to disallow deductions attributable to the activity.

More information. For more information about the rules 

for an activity not engaged in for profit, see Hobby or 

business: here's what to know about that side hustle.

Example—Property Changed 

to Rental Use

In January, you bought a condominium apartment to live 

in. Instead of selling the house you had been living in, you 

decided to change it to rental property. You selected a tenant and started renting the house on February 1. You 

charge $750 a month for rent and collect it yourself. You 

also received a $750 security deposit from your tenant. 

Because you plan to return it to your tenant at the end of 

the lease, you don’t include it in your income. Your rental 

expenses for the year are as follows.

Publication 527 (2023) Chapter 4 Special Situations 25
Mortgage interest ...................... $1,800

Fire insurance (1-year policy) ............... 100

Miscellaneous repairs (after renting) .......... 297

Real estate taxes imposed and paid ........... 1,200

You must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the 

property and the rental use of the property. You can deduct eleven-twelfths of these expenses as rental expenses. You can include the balance of the real estate taxes 

and mortgage interest when figuring the amount you can 

deduct on Schedule A if you itemize. You can’t deduct the 

balance of the fire insurance because it is a personal expense.

You bought this house in 2008 for $35,000. Your property tax was based on assessed values of $10,000 for the 

land and $25,000 for the house. Before changing it to 

rental property, you added several improvements to the 

house. You figure your adjusted basis as follows.

Improvements Cost

House ............................ $25,000

Remodeled kitchen ................... 4,200

Recreation room ..................... 5,800

New roof .......................... 1,600

Patio and deck ...................... 2,400

Adjusted basis ...................... $39,000

On February 1, when you changed your house to rental 

property, the property had an FMV of $152,000. Of this 

amount, $35,000 was for the land and $117,000 was for 

the house.

Because your adjusted basis is less than the FMV on 

the date of the change, you use $39,000 as your basis for 

depreciation.

As specified for residential rental property, you must 

use the straight line method of depreciation over the GDS 

or ADS recovery period. You choose the GDS recovery 

period of 27.5 years.

You use Table 2-2d to find your depreciation percentage. Because you placed the property in service in February, the percentage is 3.182%.

On April 1, you bought a new dishwasher for the rental 

property at a cost of $425. The dishwasher is personal 

property used in a rental real estate activity, which has a 

5-year recovery period. You use Table 2-2a to find the depreciation percentage for Year 1 under “Half-year convention” (20%) to figure your depreciation deduction.

On May 1, you paid $4,000 to have a furnace installed 

in the house. The furnace is residential rental property. Because you placed the property in service in May, the depreciation percentage from Table 2-2d is 2.273%.

You figured your net rental income or loss for the house 

as follows.

Total rental income received 

($750 × 11) ............................ $8,250

Minus: Expenses

Mortgage interest ($1,800 × 11/12) ........ $1,650

Fire insurance ($100 × 11/12) ........... 92

Miscellaneous repairs ............... 297

Real estate taxes ($1,200 × 11/12) ........ 1,100

Total expenses .......................... 3,139

Balance ................................ $5,111

Minus: Depreciation

House ($39,000 × 0.03182) ........... $1,241

Dishwasher ($425 × 0.20) ............ 85

Furnace ($4,000 × 0.02273) ........... 91

Total depreciation ......................... 1,417

Net rental income for house ........... $3,694

You use Schedule E, Part I, to report your rental income 

and expenses. You enter your income, expenses, and depreciation for the house in the column for Property A. Because all property was placed in service this year, you 

must use Form 4562 to figure the depreciation. See the Instructions for Form 4562 for more information on preparing 

the form.

5.

Personal Use of Dwelling 

Unit (Including Vacation 

Home)

If you have any personal use of a dwelling unit (including a 

vacation home) that you rent, you must divide your expenses between rental use and personal use. In general, your 

rental expenses will be no more than your total expenses 

multiplied by a fraction, the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Only your rental expenses may be 

deducted on Schedule E (Form 1040). Some of your personal expenses may be deductible on Schedule A (Form 

1040) if you itemize your deductions.

You must also determine if the dwelling unit is considered 

a home. The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a 

home. Whether a dwelling unit is considered a home depends on how many days during the year are considered 

to be days of personal use. There is a special rule if you 

used the dwelling unit as a home and you rented it for less 

than 15 days during the year.

Dwelling unit. A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, 

or similar property. It also includes all structures or other 

property belonging to the dwelling unit. A dwelling unit has 

26 Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

Publication 527 (2023)
basic living accommodations, such as sleeping space, a 

toilet, and cooking facilities.

A dwelling unit doesn’t include property (or part of the 

property) used solely as a hotel, motel, inn, or similar establishment. Property is used solely as a hotel, motel, inn, 

or similar establishment if it is regularly available for occupancy by paying customers and isn’t used by an owner as 

a home during the year.

Example. You rent a room in your home that is always 

available for short-term occupancy by paying customers. 

You don’t use the room yourself and you allow only paying 

customers to use the room. This room is used solely as a 

hotel, motel, inn, or similar establishment and isn’t a dwelling unit.

Dividing Expenses

If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and 

the personal use based on the number of days used for 

each purpose.

When dividing your expenses, follow these rules.

• Any day that the unit is rented at a fair rental price is a 

day of rental use even if you used the unit for personal 

purposes that day. (This rule doesn’t apply when determining whether you used the unit as a home.)

• Any day that the unit is available for rent but not actually rented isn’t a day of rental use.

Fair rental price. A fair rental price for your property is 

generally the amount of rent that a person who isn’t related to you would be willing to pay. The rent you charge 

isn’t a fair rental price if it is substantially less than the 

rents charged for other properties that are similar to your 

property in your area.

Ask yourself the following questions when comparing 

another property with yours.

• Is it used for the same purpose?

• Is it approximately the same size?

• Is it in approximately the same condition?

• Does it have similar furnishings?

• Is it in a similar location?

If any of the answers are no, the properties probably aren’t 

similar.

Example. Your beach cottage was available for rent 

from June 1 through August 31 (92 days). Except for the 

first week in August (7 days), when you were unable to 

find a renter, you rented the cottage at a fair rental price 

during that time. The person who rented the cottage for 

July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Your family also 

used the cottage during the last 2 weeks of May (14 days). 

The cottage wasn’t used at all before May 17 or after August 31.

You figure the part of the cottage expenses to treat as 

rental expenses as follows.

• The cottage was used for rental a total of 85 days (92 

− 7). The days it was available for rent but not rented 

(7 days) aren’t days of rental use. The July weekend 

(2 days) you used it is rental use because you received a fair rental price for the weekend.

• You used the cottage for personal purposes for 14 

days (the last 2 weeks in May).

• The total use of the cottage was 99 days (14 days personal use + 85 days rental use).

• Your rental expenses are 85/99 (86%) of the cottage 

expenses.

Note. When determining whether you used the cottage 

as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair 

rental price for the weekend. Therefore, you had 16 days 

of personal use and 83 days of rental use for this purpose. 

Because you used the cottage for personal purposes 

more than 14 days and more than 10% of the days of 

rental use (8 days), you used it as a home. If you have a 

net loss, you may not be able to deduct all of the rental expenses. See Dwelling Unit Used as a Home next.

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 figured earlier under Dividing Expenses and rental income 

depends on whether you are considered to be using the 

dwelling unit as a home.

You use a dwelling unit as a home during the tax year if 

you use it for personal purposes more than the greater of:

1. 14 days, or

2. 10% of the total days it is rented to others at a fair 

rental price.

See What is a day of personal use, later.

If a dwelling unit is used for personal purposes on a day 

it is rented at a fair rental price (discussed earlier), don’t 

count that day as a day of rental use in applying (2) above. 

Instead, count it as a day of personal use in applying both 

(1) and (2) above.

What is a day of personal use? A day of personal use 

of a dwelling unit is any day that the unit is used by any of 

the following persons.

1. You or any other person who owns an interest in it, unless you rent it to another owner as their main home 

under a shared equity financing agreement (defined 

later). However, see Days used as a main home before or after renting, later.

2. A member of your family or a member of the family of 

any other person who owns an interest in it, unless 

the family member uses the dwelling unit as their main 

Publication 527 (2023) Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

27
home and pays a fair rental price. Family includes only 

your spouse, siblings, half siblings, ancestors (parents, grandparents, etc.), and lineal descendants 

(children, grandchildren, etc.).

3. Anyone under an arrangement that lets you use some 

other dwelling unit.

4. Anyone at less than a fair rental price.

Main home. If the other person or member of the family in (1) or (2) has more than one home, their main home 

are ordinarily the one they lived in most of the time.

Shared equity financing agreement. This is an 

agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the 

co-owners are entitled to occupy the unit as their main 

home upon payment of rent to the other co-owner(s).

Donation of use of the property. You use a dwelling 

unit for personal purposes if:

• You donate the use of the unit to a charitable organization,

• The organization sells the use of the unit at a fundraising event, and

• The “purchaser” uses the unit.

Examples. The following examples show how to determine if you have days of personal use.

Example 1. You and your neighbor are co-owners of a 

condominium at the beach. Last year, you rented the unit 

to vacationers whenever possible. The unit wasn’t used as 

a main home by anyone. Your neighbor used the unit for 2 

weeks last year; you didn’t use it at all.

Because your neighbor has an interest in the unit, both 

of you are considered to have used the unit for personal 

purposes during those 2 weeks.

Example 2. You and your neighbors are co-owners of 

a house under a shared equity financing agreement. Your 

neighbors live in the house and pay you a fair rental price.

Even though your neighbors have an interest in the 

house, the days your neighbors live there aren’t counted 

as days of personal use by you. This is because your 

neighbors rent the house as their main home under a 

shared equity financing agreement.

Example 3. You own a rental property that you rent to 

your son. Your son doesn’t own any interest in this property. He uses it as his main home and pays you a fair 

rental price.

Your son's use of the property isn’t personal use by you 

because your son is using it as his main home, he owns 

no interest in the property, and he is paying you a fair 

rental price.

Example 4. You rent your beach house to Rosa. Rosa 

rents her cabin in the mountains to you. You each pay a 

fair rental price.

You are using your beach house for personal purposes 

on the days that Rosa uses it because your house is used 

by Rosa under an arrangement that allows you to use her 

cabin.

Example 5. You rent an apartment to your mother at 

less than a fair rental price. You are using the apartment 

for personal purposes on the days that your mother rents it 

because you rent it for less than a fair rental price.

Days used for repairs and maintenance. Any day 

that you spend working substantially full time repairing 

and maintaining (not improving) your property isn’t counted as a day of personal use. Don’t count such a day as a 

day of personal use even if family members use the property for recreational purposes on the same day.

Example. Corey owns a cabin in the mountains that he 

rents for most of the year. He spends a week at the cabin 

with family members. Corey works on maintenance of the 

cabin 3 or 4 hours each day during the week and spends 

the rest of the time fishing, hiking, and relaxing. Corey's 

family members, however, work substantially full time on 

the cabin each day during the week. The main purpose of 

being at the cabin that week is to do maintenance work. 

Therefore, the use of the cabin during the week by Corey 

and his family won’t be considered personal use by Corey.

Days used as a main home before or after renting. 

For purposes of determining whether a dwelling unit was 

used as a home, you may not have to count days you 

used the property as your main home before or after renting it or offering it for rent as days of personal use. Don’t 

count them as days of personal use if:

• You rented or tried to rent the property for 12 or more 

consecutive months, or

• You rented or tried to rent the property for a period of 

less than 12 consecutive months and the period 

ended because you sold or exchanged the property.

However, this special rule doesn’t apply when dividing expenses between rental and personal use. See Property 

Changed to Rental Use in chapter 4.

Example 1. On February 28, 2022, you moved out of 

the house you had lived in for 6 years because you accepted a job in another town. You rented your house at a fair 

rental price from March 15, 2022, to May 14, 2023 (14 

months). On June 1, 2023, you moved back into your old 

house.

The days you used the house as your main home from 

January 1 to February 28, 2022, and from June 1 to December 31, 2023, aren’t counted as days of personal use. 

Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses.

Example 2. On January 31, you moved out of the condominium where you had lived for 3 years. You offered it 

for rent at a fair rental price beginning on February 1. You 

were unable to rent it until April. On September 15, you 

sold the condominium.

The days you used the condominium as your main 

home from January 1 to January 31 aren’t counted as 

days of personal use when determining whether you used 

it as a home.

28 Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

Publication 527 (2023)
Examples. The following examples show how to determine whether you used your rental property as a home.

Example 1. You converted the basement of your home 

into an apartment with a bedroom, a bathroom, and a 

small kitchen. You rented the basement apartment at a fair 

rental price to college students during the regular school 

year. You rented to them on a 9-month lease (273 days). 

You figured 10% of the total days rented to others at a fair 

rental price is 27 days.

During June (30 days), your brothers stayed with you 

and lived in the basement apartment rent free.

Your basement apartment was used as a home because you used it for personal purposes for 30 days. 

Rent-free use by your brothers is considered personal 

use. Your personal use (30 days) is more than the greater 

of 14 days or 10% of the total days it was rented (27 days).

Example 2. You rented the guest bedroom in your 

home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total 

of 27 days). Your sister-in-law stayed in the room rent free 

for the last 3 weeks (21 days) in July. You figured 10% of 

the total days rented to others at a fair rental price is 3 

days.

The room was used as a home because you used it for 

personal purposes for 21 days. That is more than the 

greater of 14 days or 10% of the 27 days it was rented (3 

days).

Example 3. You own a condominium apartment in a 

resort area. You rented it at a fair rental price for a total of 

170 days during the year. For 12 of these days, the tenant 

wasn’t able to use the apartment and allowed you to use it 

even though you didn’t refund any of the rent. Your family 

actually used the apartment for 10 of those days. Therefore, the apartment is treated as having been rented for 

160 (170 – 10) days. You figured 10% of the total days rented to others at a fair rental price is 16 days. Your family 

also used the apartment for 7 other days during the year.

You used the apartment as a home because you used it 

for personal purposes for 17 days. That is more than the 

greater of 14 days or 10% of the 160 days it was rented 

(16 days).

Minimal rental use. If you use the dwelling unit as a 

home and you rent it less than 15 days during the year, 

that period isn’t treated as rental activity. See Used as a 

home but rented less than 15 days, later, for more information.

Limit on deductions. Renting a dwelling unit that is considered a home isn’t a passive activity. Instead, if your 

rental expenses are more than your rental income, some 

or all of the excess expenses can’t be used to offset income from other sources. The excess expenses that can’t 

be used to offset income from other sources are carried 

forward to the next year and treated as rental expenses for 

the same property. Any expenses carried forward to the 

next year will be subject to any limits that apply for that 

year. This limitation will apply to expenses carried forward 

to another year even if you don’t use the property as your 

home for that subsequent year.

To figure your deductible rental expenses for this year 

and any carryover to next year, use Worksheet 5-1.

Reporting Income and 

Deductions

Property not used for personal purposes. If you don’t 

use a dwelling unit for personal purposes, see chapter 3 

for how to report your rental income and expenses.

Property used for personal purposes. If you do use a 

dwelling unit for personal purposes, then how you report 

your rental income and expenses depends on whether 

you used the dwelling unit as a home.

Not used as a home. If you use a dwelling unit for 

personal purposes, but not as a home, report all the rental 

income in your income. Because you used the dwelling 

unit for personal purposes, you must divide your expenses 

between the rental use and the personal use as described 

earlier in this chapter under Dividing Expenses. The expenses for personal use aren’t deductible as rental expenses.

Your deductible rental expenses can be more than your 

gross rental income; however, see Limits on Rental Losses in chapter 3.

Used as a home but rented less than 15 days. If 

you use a dwelling unit as a home and you rent it less than 

15 days during the year, its primary function isn’t considered to be rental and it shouldn’t be reported on Schedule E (Form 1040). You aren’t required to report the rental 

income and rental expenses from this activity. Any expenses related to the home, such as mortgage interest, property taxes, and any qualified casualty loss, will be reported 

as normally allowed on Schedule A (Form 1040). See the 

Instructions for Schedule A for more information on deducting these expenses.

Used as a home and rented 15 days or more. If you 

use a dwelling unit as a home and rent it 15 days or more 

during the year, include all your rental income in your income. Because you used the dwelling unit for personal 

purposes, you must divide your expenses between the 

rental use and the personal use as described earlier in this 

chapter under Dividing Expenses. The expenses for personal use aren’t deductible as rental expenses.

If you had a net profit from renting the dwelling unit for 

the year (that is, if your rental income is more than the total 

of your rental expenses, including depreciation), deduct all 

of your rental expenses. You don’t need to use Worksheet 

5-1.

However, if you had a net loss from renting the dwelling 

unit for the year, your deduction for certain rental expenses is limited. To figure your deductible rental expenses 

and any carryover to next year, use Worksheet 5-1.

Publication 527 (2023) Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

29
Worksheet for Figuring 

Rental Deductions for a 

Dwelling Unit Used as a 

Home

Worksheet 5-1.

Keep for Your Records

Use this worksheet only if you answer “Yes” to all of the following questions.

• Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home.)

• Did you rent the dwelling unit at a fair rental price 15 days or more this year?

• Is the total of your rental expenses and depreciation more than your rental income?

PART I. Rental Use Percentage

A. Total days available for rent at fair rental price ..................................... A.

B. Total days available for rent (line A) but not rented .................................. B.

C. Total days of rental use. Subtract line B from line A ............................... C.

D. Total days of personal use (including days rented at less than fair rental price) .......... D.

E. Total days of rental and personal use. Add lines C and D ......................... E.

F. Percentage of expenses allowed for rental. Divide line C by line E .................................. F.    .      

PART II. Allowable Rental Expenses

1. Enter rents received ......................................................................... 1.

2a. Enter the rental portion of deductible home mortgage interest. See instructions ........... 2a.

 b. Enter the rental portion of deductible real estate taxes. See instructions ................. b.

 c. Enter the rental portion of deductible casualty and theft losses. See instructions .......... c.

 d. Enter direct rental expenses. See instructions ..................................... d.

 e. Fully deductible rental expenses. Add lines 2a–2d. Enter here and 

on the appropriate lines on Schedule E. See instructions ............................................ 2e.

3. Subtract line 2e from line 1. If zero or less, enter -0- ................................................ 3.

4a. Enter the rental portion of expenses directly related to operating or maintaining 

the dwelling unit (such as repairs, insurance, and utilities) ............................ 4a.

 b. Enter the rental portion of excess mortgage interest. See instructions .................. b.

c. Enter the rental portion of excess real estate taxes. See instructions ................... c.

 d. Carryover of operating expenses from 2022 worksheet .............................. d.

 e. Add lines 4a–4d ............................................................ e.

 f. Allowable expenses. Enter the smaller of line 3 or line 4e. See instructions ............................ 4f.

5. Subtract line 4f from line 3. If zero or less, enter -0- ................................................. 5.

6a. Enter the rental portion of excess casualty and theft losses. See instructions ............. 6a.

 b. Enter the rental portion of depreciation of the dwelling unit ........................... b.

 c. Carryover of excess casualty and theft losses and depreciation from 2022 worksheet ...... c.

 d. Add lines 6a–6c ............................................................ d.

 e. Allowable excess casualty and theft losses and depreciation. Enter the smaller of 

line 5 or line 6d. See instructions ............................................................... 6e.

PART III. Carryover of Unallowed Expenses to Next Year

7a. Operating expenses to be carried over to next year. Subtract line 4f from line 4e ...................... 7a.

 b. Excess casualty and theft losses and depreciation to be carried over to next year.

Subtract line 6e from line 6d ................................................................... b.

30 Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

Publication 527 (2023)
Worksheet for Figuring Rental 

Deductions for a Dwelling Unit 

Used as a Home

Worksheet 5-1 Instructions.

Keep for Your Records

Caution. Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4c, and 6a–6b of Part II.

Line 2a. If you are claiming the standard deduction, do not report an amount on line 2a; instead, report the rental portion of your 

mortgage interest on line 4b.

If you are itemizing your deductions on Schedule A, figure the amount of mortgage interest to include on line 2a by using the 

following steps. 

Step 1. Treat all the mortgage interest you paid for mortgages secured by your home(s) as a personal expense and figure the 

amount that would be deductible as an itemized expense on Schedule A. See Pub. 936 for more information about figuring the 

home mortgage interest deduction and the limits that may apply. 

Step 2. Include on line 2a the rental portion of deductible mortgage interest figured in Step 1 that is attributable to the home you 

are renting. 

Note. Be sure to claim only the personal portion of your deductible mortgage interest on Schedule A. The personal portion of 

mortgage interest on the dwelling unit doesn't include the rental portion you reported on line 2a of this Worksheet 5-1 or any 

portion that you deducted on other forms, such as Schedule C or F.

Line 2b. If you are claiming the standard deduction, do not report an amount on line 2b; instead, report the rental portion of your real 

estate taxes on line 4c.

If you are itemizing your deductions on Schedule A, figure the amount to report on line 2b by using the following steps.

Step 1. If the total of your state and local income (or, if elected on your Schedule A, general sales) taxes, real estate taxes, and 

personal property taxes is not more than $10,000 ($5,000 if married filing separately), enter the rental portion of the real estate 

taxes attributable to the dwelling unit you are renting on line 2b.

Step 2. If you do not meet the condition of Step 1, use the following worksheet to figure the amount to include on line 2b.

Line 2b Worksheet

1. Enter your state and local income taxes (or, if you elect on Schedule A, your state and 

local general sales taxes) that are personal expenses ...........................

2. Enter all the state and local real estate taxes you paid on the dwelling unit you are 

renting ...............................................................

3. Enter any other state and local real estate taxes you paid that are a personal expense 

and not included on line 2 ................................................

4. Enter your state and local personal property taxes that are a personal expense .......

5. Add lines 1 through 4 ....................................................

6. Multiply line 2 by the percentage of expenses allowed for rental (Part I, line F) ........

7. Subtract line 6 from line 5 .................................................

8. Subtract line 7 from $10,000 ($5,000 if married filing separately). If zero or less, 

enter -0- ..............................................................

9. Real estate taxes reported on line 2b. Enter the smaller of line 6 or line 8 here and 

on line 2b .............................................................

10. Excess real estate taxes reported on line 4c. Subtract line 9 from line 6 ..........

Note. Be sure to report only the personal portion of your real estate taxes on line 5b of Schedule A. The personal 

portion of real estate taxes on the dwelling unit doesn't include the rental portion you reported on line 2b of this 

Worksheet 5-1 or any portion that you deducted on other forms, such as Schedule C or F. 

Line 2c. If you are claiming the standard deduction and you are not increasing your standard deduction by a net qualified disaster loss, 

do not report an amount on line 2c; instead, report the rental portion of your casualty losses on line 6a.

If you are itemizing your deductions on Schedule A or filing a Schedule A to increase your standard deduction by a net qualified 

disaster loss, figure the amount to report on line 2c by using the following steps.

Step 1. Complete a worksheet version of Section A of Form 4684 treating all your casualty losses (and gains) as personal 

expenses. If you are itemizing your deductions, when completing line 17 of this worksheet version of Form 4684, enter 10% of 

your adjusted gross income figured without your rental income and expenses from the dwelling unit. Don't file this worksheet 

version of Form 4684; instead, keep it for your records. You will complete a separate Form 4684 to attach to your return using 

only the personal portion of your casualty losses (and gains) for Section A.

Step 2. Include on line 2c the rental portion of the loss amounts from lines 15 and 18 of this worksheet version of Form 4684 that 

are the result of a federally declared disaster. If you are claiming an increased standard deduction instead of itemizing your 

deductions, only use the rental portion of a net qualified disaster loss on line 15 of the worksheet version of Form 4684 for this 

Step 2.

Note. Be sure to use only the personal portion of your casualty losses (and gains) when completing Section A of the separate 

Form 4684 you attach to your return. The separate Form 4684 you attach to your return is used to figure the casualty losses you 

can include on line 15 of Schedule A and the net qualified disaster losses you can include on line 16 of Schedule A. You will 

report casualty and theft losses attributable to your rental activity in Section B of the separate Form 4684 you attach to your 

return.

Publication 527 (2023) Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

31
Worksheet 5-1 Instructions—Continued

Line 2d. Enter the total of your rental expenses that are directly related only to the rental activity. These include interest on loans used for 

rental activities other than to buy, build, or improve the dwelling unit. Also, include rental agency fees, advertising, office 

supplies, and depreciation on office equipment used in your rental activity.

Line 2e. You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses even if your rental expenses are more than your 

rental income. Enter the amounts on lines 2a, 2b, and 2d on the appropriate lines of Schedule E. Include the amount from 

line 2c with the casualty loss from line 6e, if any, in Section B of Form 4684, on line 27, and enter “See attached statement” 

above line 27. Attach a statement to your tax return showing how you calculated the deductible loss (you can use the worksheet 

as your attachment).

Line 4b. If you are claiming the standard deduction, enter the rental portion of all the home mortgage interest paid for loans used to buy, 

build, or substantially improve the dwelling unit you are renting on line 4b. Do not include mortgage interest on a loan that did not 

benefit the dwelling unit (for example, a home equity loan used to pay off credit card bills, to buy a car, or to pay tuition costs).

If you are itemizing your deductions and the amount you figured in Step 1 under Line 2a was less than the full amount of interest 

you paid because of the limits on deducting home mortgage interest as a personal expense, include on line 4b the rental portion 

of the excess attributable to the loans used to buy, build, or substantially improve the dwelling unit you rented.

Line 4c. If you are claiming the standard deduction, enter the rental portion of all the real estate taxes paid on the dwelling unit you 

rented.

If you are itemizing your deductions and you used the Line 2b Worksheet to figure the amount to include on line 2b, then include 

the amount from line 10 of the Line 2b Worksheet on line 4c; otherwise, do not enter an amount on line 4c.

Line 4f. You can deduct the amounts on lines 4a, 4b, 4c, and 4d as rental expenses on Schedule E only to the extent they aren’t more 

than the amount on line 4f.*

Line 6a. If you are claiming the standard deduction and not increasing it by a net qualified disaster loss, enter the rental portion of all 

casualty losses attributable to the dwelling unit you rented.

If you are itemizing your deductions on Schedule A or filing a Schedule A to increase your standard deduction by a net qualified 

disaster loss, enter the rental portion of the casualty losses attributable to the dwelling unit you rented that are in excess of the 

amount you figured on lines 15 and 18 of your worksheet version of Form 4684.

Line 6e. You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses only to the extent they aren’t more than the amount on 

line 6e.* Include the depreciation from line 6e, if any, on the appropriate line of Schedule E. Include the casualty loss from 

line 6e, if any, with the casualty loss from line 2c in Section B of Form 4684, on line 27, and enter “See attached statement” 

above line 27. Attach a statement to your tax return showing how you calculated the deductible loss (you can use the worksheet 

as your attachment).

* Allocating the limited deduction. If you can’t deduct all of the amount on line 4e or 6d this year, you can allocate the allowable deduction in any way you wish 

among the expenses included on line 4e or 6d. Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I, or if a casualty loss, as 

instructed earlier on Form 4684, line 27.

32 Chapter 5 Personal Use of Dwelling Unit (Including 

Vacation Home)

Publication 527 (2023)
6.

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, 

forms, or instructions, go to IRS.gov to find resources that 

can help you right away.

Preparing and filing your tax return. After receiving all 

your wage and earnings statements (Forms W-2, W-2G, 

1099-R, 1099-MISC, 1099-NEC, etc.); unemployment 

compensation statements (by mail or in a digital format) or 

other government payment statements (Form 1099-G); 

and interest, dividend, and retirement statements from 

banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you 

qualify for free tax preparation, or hire a tax professional to 

prepare your return.

Free options for tax preparation. Your options for preparing and filing your return online or in your local community, if you qualify, include the following.

• Free File. This program lets you prepare and file your 

federal individual income tax return for free using software or Free File Fillable Forms. However, state tax 

preparation may not be available through Free File. Go 

to IRS.gov/FreeFile to see if you qualify for free online 

federal tax preparation, e-filing, and direct deposit or 

payment options.

• VITA. The Volunteer Income Tax Assistance (VITA) 

program offers free tax help to people with 

low-to-moderate incomes, persons with disabilities, 

and limited-English-speaking taxpayers who need 

help preparing their own tax returns. Go to IRS.gov/

VITA, download the free IRS2Go app, or call 

800-906-9887 for information on free tax return preparation.

• TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly 

those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors. 

Go to IRS.gov/TCE or download the free IRS2Go app 

for information on free tax return preparation.

• MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military 

OneSource. For more information, go to 

MilitaryOneSource (MilitaryOneSource.mil/MilTax).

Also, the IRS offers Free Fillable Forms, which can 

be completed online and then e-filed regardless of income.

Using online tools to help prepare your return. Go to 

IRS.gov/Tools for the following.

• The Earned Income Tax Credit Assistant (IRS.gov/

EITCAssistant) determines if you’re eligible for the 

earned income credit (EIC).

• The Online EIN Application (IRS.gov/EIN) helps you 

get an employer identification number (EIN) at no 

cost.

• The Tax Withholding Estimator (IRS.gov/W4App) 

makes it easier for you to estimate the federal income 

tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay, or tax due.

• The First-Time Homebuyer Credit Account Look-up 

(IRS.gov/HomeBuyer) tool provides information on 

your repayments and account balance.

• The Sales Tax Deduction Calculator (IRS.gov/

SalesTax) figures the amount you can claim if you 

itemize deductions on Schedule A (Form 1040).

Getting answers to your tax questions. On 

IRS.gov, you can get up-to-date information on 

current events and changes in tax law.

• IRS.gov/Help: A variety of tools to help you get answers to some of the most common tax questions.

• IRS.gov/ITA: The Interactive Tax Assistant, a tool that 

will ask you questions and, based on your input, provide answers on a number of tax topics.

• IRS.gov/Forms: Find forms, instructions, and publications. You will find details on the most recent tax 

changes and interactive links to help you find answers 

to your questions.

• You may also be able to access tax information in your 

e-filing software.

Need someone to prepare your tax return? There are 

various types of tax return preparers, including enrolled 

agents, certified public accountants (CPAs), accountants, 

and many others who don’t have professional credentials. 

If you choose to have someone prepare your tax return, 

choose that preparer wisely. A paid tax preparer is:

• Primarily responsible for the overall substantive accuracy of your return,

• Required to sign the return, and

• Required to include their preparer tax identification 

number (PTIN).

Although the tax preparer always signs the return, 

you're ultimately responsible for providing all the 

information required for the preparer to accurately 

prepare your return and for the accuracy of every item reported on the return. Anyone paid to prepare tax returns 

for others should have a thorough understanding of tax 

matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov.

CAUTION

!

Publication 527 (2023) Chapter 6 How To Get Tax Help 33
Employers can register to use Business Services Online. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure 

W-2 filing options to CPAs, accountants, enrolled agents, 

and individuals who process Form W-2, Wage and Tax 

Statement, and Form W-2c, Corrected Wage and Tax 

Statement.

IRS social media. Go to IRS.gov/SocialMedia to see the 

various social media tools the IRS uses to share the latest 

information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our 

highest priority. We use these tools to share public information with you. Don’t post your social security number 

(SSN) or other confidential information on social media 

sites. Always protect your identity when using any social 

networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, 

Spanish, and ASL.

• Youtube.com/irsvideos.

• Youtube.com/irsvideosmultilingua.

• Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal 

(IRSVideos.gov) contains video and audio presentations 

for individuals, small businesses, and tax professionals.

Online tax information in other languages. You can 

find information on IRS.gov/MyLanguage if English isn’t 

your native language.

Free Over-the-Phone Interpreter (OPI) Service. The 

IRS is committed to serving taxpayers with limited-English 

proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and 

every VITA/TCE tax return site. The OPI Service is accessible in more than 350 languages.

Accessibility Helpline available for taxpayers with 

disabilities. Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and 

future accessibility products and services available in alternative media formats (for example, braille, large print, 

audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or 

account-related issues, go to IRS.gov/LetUsHelp.

Note. Form 9000, Alternative Media Preference, or 

Form 9000(SP) allows you to elect to receive certain types 

of written correspondence in the following formats.

• Standard Print.

• Large Print.

• Braille.

• Audio (MP3).

• Plain Text File (TXT).

• Braille Ready File (BRF).

Disasters. Go to IRS.gov/DisasterRelief to review the 

available disaster tax relief.

Getting tax forms and publications. Go to IRS.gov/

Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to 

IRS.gov/OrderForms to place an order.

Getting tax publications and instructions in eBook 

format. Download and view most tax publications and instructions (including the Instructions for Form 1040) on 

mobile devices as eBooks at IRS.gov/eBooks.

IRS eBooks have been tested using Apple's iBooks for 

iPad. Our eBooks haven’t been tested on other dedicated 

eBook readers, and eBook functionality may not operate 

as intended.

Access your online account (individual taxpayers 

only). Go to IRS.gov/Account to securely access information about your federal tax account.

• View the amount you owe and a breakdown by tax 

year.

• See payment plan details or apply for a new payment 

plan.

• Make a payment or view 5 years of payment history 

and any pending or scheduled payments.

• Access your tax records, including key data from your 

most recent tax return, and transcripts.

• View digital copies of select notices from the IRS.

• Approve or reject authorization requests from tax professionals.

• View your address on file or manage your communication preferences.

Get a transcript of your return. With an online account, 

you can access a variety of information to help you during 

the filing season. You can get a transcript, review your 

most recently filed tax return, and get your adjusted gross 

income. Create or access your online account at IRS.gov/

Account.

Tax Pro Account. This tool lets your tax professional 

submit an authorization request to access your individual 

taxpayer IRS online account. For more information, go to 

IRS.gov/TaxProAccount.

Using direct deposit. The safest and easiest way to receive a tax refund is to e-file and choose direct deposit, 

which securely and electronically transfers your refund directly into your financial account. Direct deposit also 

avoids the possibility that your check could be lost, stolen, 

destroyed, or returned undeliverable to the IRS. Eight in 

10 taxpayers use direct deposit to receive their refunds. If 

you don’t have a bank account, go to IRS.gov/

DirectDeposit for more information on where to find a bank 

or credit union that can open an account online.

34 Chapter 6 How To Get Tax Help Publication 527 (2023)
Reporting and resolving your tax-related identity 

theft issues. 

• Tax-related identity theft happens when someone 

steals your personal information to commit tax fraud. 

Your taxes can be affected if your SSN is used to file a 

fraudulent return or to claim a refund or credit.

• The IRS doesn’t initiate contact with taxpayers by 

email, text messages (including shortened links), telephone calls, or social media channels to request or 

verify personal or financial information. This includes 

requests for personal identification numbers (PINs), 

passwords, or similar information for credit cards, 

banks, or other financial accounts.

• Go to IRS.gov/IdentityTheft, the IRS Identity Theft 

Central webpage, for information on identity theft and 

data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or 

stolen or you suspect you’re a victim of tax-related 

identity theft, you can learn what steps you should 

take.

• Get an Identity Protection PIN (IP PIN). IP PINs are 

six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your 

SSN. To learn more, go to IRS.gov/IPPIN.

Ways to check on the status of your refund. 

• Go to IRS.gov/Refunds.

• Download the official IRS2Go app to your mobile device to check your refund status.

• Call the automated refund hotline at 800-829-1954.

The IRS can’t issue refunds before mid-February 

for returns that claimed the EIC or the additional 

child tax credit (ACTC). This applies to the entire 

refund, not just the portion associated with these credits.

Making a tax payment. Payments of U.S. tax must be 

remitted to the IRS in U.S. dollars. Digital assets are not 

accepted. Go to IRS.gov/Payments for information on how 

to make a payment using any of the following options.

• IRS Direct Pay: Pay your individual tax bill or estimated 

tax payment directly from your checking or savings account at no cost to you.

• Debit Card, Credit Card, or Digital Wallet: Choose an 

approved payment processor to pay online or by 

phone.

• Electronic Funds Withdrawal: Schedule a payment 

when filing your federal taxes using tax return preparation software or through a tax professional.

• Electronic Federal Tax Payment System: Best option 

for businesses. Enrollment is required.

• Check or Money Order: Mail your payment to the address listed on the notice or instructions.

• Cash: You may be able to pay your taxes with cash at 

a participating retail store.

CAUTION

!

• Same-Day Wire: You may be able to do same-day 

wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to 

ensure that the electronic payments you make online, by 

phone, or from a mobile device using the IRS2Go app are 

safe and secure. Paying electronically is quick, easy, and 

faster than mailing in a check or money order.

What if I can’t pay now? Go to IRS.gov/Payments for 

more information about your options.

• Apply for an online payment agreement (IRS.gov/

OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once 

you complete the online process, you will receive immediate notification of whether your agreement has 

been approved.

• Use the Offer in Compromise Pre-Qualifier to see if 

you can settle your tax debt for less than the full 

amount you owe. For more information on the Offer in 

Compromise program, go to IRS.gov/OIC.

Filing an amended return. Go to IRS.gov/Form1040X 

for information and updates.

Checking the status of your amended return. Go to 

IRS.gov/WMAR to track the status of Form 1040-X amended returns.

It can take up to 3 weeks from the date you filed 

your amended return for it to show up in our system, and processing it can take up to 16 weeks.

Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

Responding to an IRS notice or letter. You can now 

upload responses to all notices and letters using the 

Document Upload Tool. For notices that require additional 

action, taxpayers will be redirected appropriately on 

IRS.gov to take further action. To learn more about the 

tool, go to IRS.gov/Upload.

Note. You can use Schedule LEP (Form 1040), Request for Change in Language Preference, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language. You may 

not immediately receive written communications in the requested language. The IRS’s commitment to LEP taxpayers is part of a multi-year timeline that began providing 

translations in 2023. You will continue to receive communications, including notices and letters, in English until they 

are translated to your preferred language.

Contacting your local TAC. Keep in mind, many questions can be answered on IRS.gov without visiting a TAC. 

Go to IRS.gov/LetUsHelp for the topics people ask about 

most. If you still need help, TACs provide tax help when a 

tax issue can’t be handled online or by phone. All TACs 

now provide service by appointment, so you’ll know in 

CAUTION

!

Publication 527 (2023) Chapter 6 How To Get Tax Help 35
advance that you can get the service you need without 

long wait times. Before you visit, go to IRS.gov/

TACLocator to find the nearest TAC and to check hours, 

available services, and appointment options. Or, on the 

IRS2Go app, under the Stay Connected tab, choose the 

Contact Us option and click on “Local Offices.”

The Taxpayer Advocate 

Service (TAS) Is Here To Help 

You

What Is TAS?

TAS is an independent organization within the IRS that 

helps taxpayers and protects taxpayer rights. Their job is 

to ensure that every taxpayer is treated fairly and that you 

know and understand your rights under the Taxpayer Bill 

of Rights.

How Can You Learn About Your Taxpayer 

Rights?

The Taxpayer Bill of Rights describes 10 basic rights that 

all taxpayers have when dealing with the IRS. Go to 

TaxpayerAdvocate.IRS.gov to help you understand what 

these rights mean to you and how they apply. These are 

your rights. Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you can’t resolve 

with the IRS. And their service is free. If you qualify for 

their assistance, you will be assigned to one advocate 

who will work with you throughout the process and will do 

everything possible to resolve your issue. TAS can help 

you if:

• Your problem is causing financial difficulty for you, 

your family, or your business;

• You face (or your business is facing) an immediate 

threat of adverse action; or

• You’ve tried repeatedly to contact the IRS but no one 

has responded, or the IRS hasn’t responded by the 

date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of Columbia, 

and Puerto Rico. To find your advocate’s number:

• Go to TaxpayerAdvocate.IRS.gov/Contact-Us;

• Download Pub. 1546, The Taxpayer Advocate Service 

Is Your Voice at the IRS, available at IRS.gov/pub/irspdf/p1546.pdf;

• Call the IRS toll free at 800-TAX-FORM 

(800-829-3676) to order a copy of Pub. 1546;

• Check your local directory; or

• Call TAS toll free at 877-777-4778.

How Else Does TAS Help Taxpayers?

TAS works to resolve large-scale problems that affect 

many taxpayers. If you know of one of these broad issues, 

report it to TAS at IRS.gov/SAMS. Be sure to not include 

any personal taxpayer information.

Low Income Taxpayer Clinics (LITCs)

LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level 

and who need to resolve tax problems with the IRS. LITCs 

can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, 

LITCs can provide information about taxpayer rights and 

responsibilities in different languages for individuals who 

speak English as a second language. Services are offered 

for free or a small fee. For more information or to find an 

LITC near you, go to the LITC page at 

TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134, 

Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/

p4134.pdf.

36 Publication 527 (2023)
To help us develop a more useful index, please let us know if you have ideas for index entries.

Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

A

Accelerated Cost Recovery System 

(ACRS) 12

(See also Modified Accelerated Cost Recovery 

System (MACRS))

Effective date 10

Accounting methods:

Accrual method 4

Cash method 4

Constructive receipt of income 4

Accrual method taxpayers 4

ACRS (Accelerated Cost Recovery System):

Effective date 10

Active participation 21

Activities not for profit 25

Additions to property 14

(See also Improvements)

Basis 12

MACRS recovery period 14

Adjusted basis:

MACRS depreciation 11

Adjusted gross income (AGI):

Modified (See Modified adjusted gross 

income (MAGI))

Advance rent 4

Security deposits 4

Advertising 5

Allocation of expenses:

Change of property to rental use 24

How to divide expenses 27

Part of property rented 25

Personal use of rental property 5, 26

Alternative Depreciation System (ADS):

Election of 13

MACRS 12, 18

Alternative minimum tax (AMT):

Accelerated depreciation methods 8

Apartments:

Basement apartments 29

Dwelling units 26

Appraisal fees 11

Assessments for maintenance 12

Assessments, local (See Local assessments)

Assistance (See Tax help)

Assumption of mortgage 11

Attorneys' fees 11, 12

Automobiles:

MACRS recovery periods 13

B

Basis:

Adjusted basis 11

Assessments for local improvements 12

Basis other than cost 11

Cost basis 10

Decreases to 12

Deductions:

Capitalization of costs vs. 12

Not greater than basis 10

Fair market value 24

Increases to 12

MACRS depreciable basis 10

Property changed to rental use 24

C

Capital expenditures:

Deductions vs. effect on basis 12

Local benefit taxes 5

Mortgages, payments to obtain 5

Cars:

MACRS recovery periods 13

Cash method taxpayers 4

Casualty losses 22

Charitable contributions:

Use of property 28

Cleaning and maintenance 5

Closing costs 11

Commissions 5

Computers:

MACRS recovery periods 13

Condominiums 23, 26

Constructive receipt of income 4

Cooperative housing 9, 23, 26

Cost basis 10

Credit reports 11

Credits:

Residential energy credits 12

D

Days of personal use 27

Days used for repairs and maintenance 28

Deductions:

Capitalizing costs vs. effect on basis 12

Depreciation (See Depreciation)

Limitations on 19

Passive activity losses (See Passive activity)

Depreciation 8

Alternative Depreciation System (ADS) 

(See Modified Accelerated Cost 

Recovery System (MACRS))

Basis (See Basis)

Change of property to rental use 24

Claiming correct amount of 18

Declining balance method 10

Duration of property expected to last more 

than one year 9

Eligible property 9

First-year expensing 8

MACRS (See Modified Accelerated Cost 

Recovery System (MACRS))

Methods 10, 15

Ownership of property 9

Rental expense 5

Rented property 9

Section 179 deduction 8

Special depreciation allowances 12

Straight line method 10

Useful life 9

Vacant rental property 6

Discount, bonds and notes issued at 

(See Original issue discount (OID))

Dividing of expenses (See Allocation of 

expenses)

Dwelling units:

Definition 26

Fair rental price 27

Personal use of 26, 27

E

Easements 12

Equipment rental expense 6

F

Fair market value (FMV) 24

Fair rental price 27

Fees:

Loan origination fees 6, 11

Points (See Points)

Settlement fees and other costs 11

Tax return preparation fees 5

First-year expensing 8

Form 1040 or 1040-SR:

Not rented for profit income 25

Part of property rented 25

Rental income and expenses 18

Schedule E 19

Form 1098:

Mortgage interest 5

Form 4684:

Casualties and thefts 22

Form 4797:

Sales of business property 22

Form 8582:

Passive activity losses 21, 22

G

Gains and losses:

At-risk rules 20

Casualty and theft losses 22

Limits on rental losses 19

Passive activity losses 20

Rental real estate activities 21

Sale of rental property 3, 22

General depreciation system (GDS) 

(See Modified Accelerated Cost Recovery 

System (MACRS))

H

Home:

Main home 28

Use as rental property (See Use of home)

I

Improvements 8

(See also Repairs)

Assessments for local improvements 12

Basis 12

Depreciation of rented property 9

MACRS recovery period 14

Insurance 5

Casualty or theft loss payments 12

Change of property to rental use 24

Fire insurance premiums, cost basis 11

Part of property rented 25

Premiums paid in advance 5

Title insurance, cost basis 11

Interest payments 5

(See also Mortgages)

Loan origination fees 6

Rental expenses 5

L

Land:

Cost basis 11

Depreciation 9

Leases:

Cancellation payments 4

Equipment leasing 6

Limits:

Passive activity losses and credits 20

Rental losses 19

Loans:

Assumption fees 11

Charges connected with getting or 

refinancing, cost basis 11

Low or no interest 11

Origination fees 6

Publication 527 (2023) 37
Local assessments 12

Losses (See Gains and losses)

M

Missing children, photographs of 2

Modified Accelerated Cost Recovery System 

(MACRS) 12-18

Additions or improvements to property 14

Adjusted basis 11

Alternative Depreciation System (ADS) 12, 

18

Basis other than cost 11

Conventions 14

Cost basis 10

Depreciable basis 10

Effective date 10

Excluded property 13

General Depreciation System (GDS) 12, 13, 

15

Nonresidential rental property 13

Property used in rental activities 

(Table 2-1) 14

Recovery periods 14, 15

Residential rental property 13, 15

Special depreciation allowances 12

Modified adjusted gross income (MAGI) 21

Mortgages 5, 11

Assumption of, cost basis 11

Change of property to rental use 24

End of, OID 7

Interest 5, 24, 25

Part of property rented 25

N

Nonresidential real property 13

Not-for-profit activities 25

O

Original issue discount (OID) 6, 7

P

Part interest:

Expenses 5

Income 4

Passive activity:

Maximum special allowance 21

Personal property:

Rental income from 4

Personal use of rental property 24, 26

(See also Property changed to rental use)

Placed-in-service date 9

Points 5, 6, 11

Pre-rental expenses 6

Principal residence (See Home)

Profit, property not rented for 25

Property changed to rental use 24

Basis 24

Publications (See Tax help)

R

Real estate professionals 20

Real estate taxes 11

Real property trades or businesses 20

Recordkeeping requirements:

Travel and transportation expenses 6

Recovery periods 13

Rent 11

Advance rent 4

Fair price 27

Rental expenses 5

Advertising 5

Allocation between rental and personal 

uses 27

Change of property to rental use 24

Cleaning and maintenance 5

Commissions 5

Depreciation 5

Dwelling unit used as home 27

Equipment rental 6

Home, property also used as 4

Improvements 8

Insurance 5

Interest payments 5

Local transportation expenses 5

Part of property rented 25

Points 5, 6

Pre-rental expenses 6

Rental payments 5

Repairs 5, 7

Sale of property 6

Tax return preparation fees 5

Taxes 5

Tenant, paid by 4

Travel expenses 5

Utilities 5

Vacant rental property 6

Rental income:

Advance rent 4

Cancellation of lease payments 4

Dwelling unit used as home 27

Lease with option to buy 4

Not rented for profit 25

Part interest 4

Property received from tenant 4

Reporting 4, 18

Security deposit 4

Services received from tenant 4

Uncollected rent 6

Used as home 4

Rental losses 21

(See also Gains and losses)

(See also Passive activity)

Repairs 5, 7

(See also Improvements)

Assessments for maintenance 12

Personal use of rental property exception for 

days used for repairs and 

maintenance 28

S

Sale of property:

Expenses 6

Gain or loss 3, 22

Main home 3

Section 179 deductions 8

Security deposits 4

Settlement fees 11

Shared equity financing agreements 28

Special depreciation allowances 12

Spouse:

Material participation 21

Standard mileage rates 6

Surveys 11

T

Tables and figures:

Improvements, examples of (Table 1-1) 8

MACRS optional tables (Table 2-2d) 18

MACRS optional tables (Tables 2-2a, 2-2b, 

and 2-2c) 17

MACRS recovery periods for property used in 

rental activities (Table 2-1) 14

Tax credits:

Residential energy credits, effect on 

basis 12

Tax help 33

Tax return preparation fees 5

Taxes:

Deduction of 5

Local benefit taxes 5

Real estate taxes 11

Transfer taxes 11

Theft losses 22

Title insurance 11

Transfer taxes 11

Travel and transportation expenses:

Local transportation expenses 5

Recordkeeping 6

Rental expenses 5

Standard mileage rate 6

U

Uncollected rent:

Income 6

Use of home:

Before or after renting 28

Change to rental use 24

Days of personal use 27

Fair rental price 27

Passive activity rules exception 21

Personal use as dwelling unit 26

Utilities 5, 12

V

Vacant rental property 6

Vacation homes:

Dwelling unit 26

Fair rental price 27

Personal use of 26

Valuation:

Fair market value 24

38 Publication 527 (2023)