Personal apartment is sublet 4 out of 12 months in 2017 & 2018. Would profit motive be required for Sec. 212/Schedule E deductibility?
Sec. 183 would seem to apply. See analogous example of rental situation at T.Reg. 1.183-1(d)1 Here sublet rental income (fmv) – rent expense (due landlord) = 0, so no profit expected either year.
Taxpayer will be better off economically than if no subletting, but that doesn’t seem to be considered a profit to meet Sec. 212 &183 requirements.
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2 comments on “Tax Professionals – Do You Know The Answer To This Tax Question?”
Section 183 only comes into play if you have a loss. We are only allowed to deduct losses from businesses/profit-making activities. Losses from everyday activities generally are not deductible (except certain casualty losses and other itemized expenses). This sublet does not seem to be a business activity and rent is not an itemized deduction, so any loss is not deductible. On the other hand, if you do not make a profit (here we seemed to be zeroed out) there also is no gain to report.
I believe there are more questions to ask to keep from assuming too much. Is the sublet for exclusive use of the sub tennant with the taxpayer not in the apartment? If the taxpayer continue to occupy the apartment the expense may only be half of the rent paid to the landlord. Were there any other expenses incurred such as advertising, repairs, maintenance? The income is initially taxable, The expenses are deductible from the rental income on Schedule E. The question is how much are the expenses. If a net loss, does the taxpayer qualify to take the loss against other income? Subject to income limitations, up to $25,000 in losses could be deducted from other income
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