Norm wrote:
- quote -

are temporarily renting their homes, I see no reason why this
family who merely intends to keep the home occupied and in good
repair and hopes to cover some expenses and is not renting to
make a profit could not treat this home as a not-for-profit
business activity. As such, there is no Schedule E to file.

(As a side note I am familiar with not-for-profit rentals between
family members, typically parents and child.)

Chapter 1 of IRS Pub 535 explains how one goes about deducting
the expenses for a not-for-profit activity. Note that your
deductible expenses can not exceed the rental income. Rental
income in this instance gets reported on Line 21, "Other Income"
of Form 1040.

I have appended part of Chapter 1 below:

Limit on Deductions

If your activity is not carried on for profit, take deductions in
the following order and only to the extent stated in the three
categories. If you are an individual, these deductions may be
taken only if you itemize. These deductions may be taken on
Schedule A (Form 1040).
Category 1. Deductions you can take for personal as well as for
business activities are allowed in full. For individuals, all
nonbusiness deductions, such as those for home mortgage interest,
taxes, and casualty losses, belong in this category. Deduct them
on the appropriate lines of Schedule A (Form 1040). You can
deduct a casualty loss on property you own for personal use only
to the extent it is more than $100 and exceeds 10% of your
adjusted gross income. See Publication 547 for more information
on casualty losses. For the limits that apply to mortgage
interest, see Publication 936.

Category 2. Deductions that do not result in an adjustment to
the basis of property are allowed next, but only to the extent
your gross income from the activity is more than your deductions
under the first category. Most business deductions, such as those
for advertising, insurance premiums, interest, utilities, and
wages, belong in this category.

Category 3. Business deductions that decrease the basis of
property are allowed last, but only to the extent the gross
income from the activity exceeds the deductions you take under
the first two categories. Deductions for depreciation,
amortization, and the part of a casualty loss an individual could
not deduct in category (1) belong in this category. Where more
than one asset is involved, allocate depreciation and these other
deductions proportionally.

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Scenario. Military family received three year orders. They move but
keep their home. In their new location they are renting a home.
The family plans to return after three years - either through military
reassignment or if necessary, retirement. Their home is being rented
out during their absence. Due to expenses (mortgage and taxes) there
is no chance they will ever show a rental profit in the next three
years (or the next five years for that matter). Their combined
income is in excess of $150K so the passive losses can only be carried
forward.

Questions:
1) Can they treat the rental as not-for-profit and take the mortgage
and real estate tax deductions on schedule A? (As noted above, these
expenses are in excess of the rent they receive.)
2) Could they claim real estate taxes on Schedule A and omit them
from Schedule E? The wording for mortgage expenses is clear
(principle residence) but the wording for real estate taxes is a bit
different.

I'm looking for any help from someone who may have dealt with a
similar situation.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >