Tax Domain Rental

Data Schema

Add under domains.rental in data/tax-profile.json (array to support multiple properties):

{
  "domains": {
    "rental": [
      {
        "propertyId": "rental-1",
        "address": "123 Main St, Oakland CA 94601",
        "daysRented": 280,
        "daysPersonalUse": 0,
        "rentalIncome": 24000,
        "expenses": {
          "mortgageInterest": 8400,
          "propertyTaxes": 3200,
          "insurance": 1200,
          "repairs": 850,
          "hoaFees": 0,
          "utilitiesPaid": 0,
          "propertyManagement": 2400,
          "advertising": 150,
          "other": 200
        },
        "depreciation": {
          "purchaseDate": "2018-06-15",
          "totalCostBasis": 480000,
          "landValue": 96000,
          "buildingBasis": 384000,
          "priorDepreciationTaken": 48000,
          "currentYearDepreciation": null,
          "capitalImprovements2025": 0
        },
        "activeParticipation": true,
        "isMixedUse": false,
        "scheduleE": {
          "netIncomeLoss": null,
          "passiveLossAllowed": null,
          "passiveLossCarryforward": 0
        }
      }
    ]
  }
}

Calculation Rules

Step 1: Determine Property Classification

• Pure rental (personal use days ≤ 14 days AND ≤ 10% of rental days): Full Schedule E rules apply.
• Mixed-use / vacation home (personal use > 14 days AND > 10% of rental days): Allocate expenses by rental-day fraction; cannot deduct losses beyond rental income.
• Primarily personal (rented < 15 days): All rental income excluded from income (IRC §280A(g)); no deductions.

Step 2: Calculate Annual Depreciation

Residential rental property uses straight-line depreciation over 27.5 years (IRC §168).

Annual depreciation = Building basis ÷ 27.5

For the first and last year, use mid-month convention:

• Months in service in year 1 = 12 − month placed in service + 0.5
• First-year depreciation = (Building basis ÷ 27.5) × (months in service ÷ 12)

Capital improvements are depreciated separately over 27.5 years (residential) starting mid-month of the improvement month.

Step 3: Compute Schedule E Net Income / Loss

Gross rental income
- Mortgage interest
- Property taxes
- Insurance
- Repairs and maintenance
- HOA fees
- Utilities (if paid by landlord)
- Property management fees
- Advertising
- Depreciation
- Other ordinary and necessary expenses
= Net income (or loss) — Schedule E, Line 26

Enter on Schedule E Part I. Net income flows to Form 1040 Schedule 1, Line 5.

Step 4: Passive Activity Loss Rules (IRC §469)

Rental activities are passive by default. Passive losses can only offset passive income unless an exception applies.

$25,000 Allowance Exception (Active Participation):

• If taxpayer actively participated (not just invested — must make management decisions), up to $25,000 of rental loss can offset non-passive income.
• Phase-out: Allowance reduces by $0.50 for every $1 of MAGI above $100,000.
  • Formula: max(0, $25,000 − 0.50 × max(0, MAGI − $100,000))
  • Fully phased out at MAGI = $150,000.

Real Estate Professional Exception (IRC §469(c)(7)):

• Taxpayer qualifies if: (1) more than 50% of personal services performed in real property trades/businesses, AND (2) more than 750 hours per year in those activities.
• If qualified, rental losses are not passive and fully deductible — flag this to user if they mention significant real estate activity.

Passive Loss Carryforward:

• Any disallowed loss carries forward to future years.
• Track passiveLossCarryforward in the data schema.
• Carryforward losses are released when property is sold.

Step 5: Safe Harbor for Small Landlords (Rev. Proc. 2019-38)

Rental activity qualifies for safe harbor treatment (as a trade or business for QBI deduction purposes) if:

• 250+ hours of rental services performed per year (or all rental activity is one property).
• Contemporaneous records maintained.
• Not a triple-net lease. If safe harbor met, rental income may be eligible for the 20% QBI deduction (out of scope for v1 — flag to user).

References

Read skills/tax-domain-rental/references/schedule-e-rules.md for detailed depreciation tables, Schedule E line-by-line instructions, and passive activity loss examples.