Definition§
Residential rental property refers to any real estate that consists of rental units used for dwelling purposes. These properties are not considered transient lodging, such as hotels or motels. In order to qualify as residential rental property for income tax purposes, at least 80% of the gross income from the building must be derived from dwelling units. A key aspect of residential rental property is its eligibility for a 27½-year life for tax depreciation purposes, contrasting with the 39-year life allocated to nonresidential property.
Examples§
- Single-Family Homes: A standalone house rented out to a single family.
- Apartment Buildings: Multi-unit buildings where the majority of the units are rented out as residences.
- Duplexes and Triplexes: Buildings divided into two or three separate rental units, respectively, for residential purposes.
- Townhouses and Condominiums: Individual units within a larger property complex, used as rental dwellings.
Frequently Asked Questions§
What is considered a residential rental property?§
Any property rented out for residential dwelling purposes, excluding transient use like hotels or motels, and where at least 80% of the income is generated from dwelling units.
How is residential rental property taxed?§
Residential rental properties are subject to income tax on the rental income generated. The property is also eligible for tax deductions such as mortgage interest, property taxes, and depreciation.
What is the depreciation period for residential rental property?§
Residential rental property qualifies for a 27½-year depreciation period for tax purposes.
Can you depreciate the land under a residential rental property?§
No, only the building or improvements can be depreciated. Land itself cannot be depreciated.
What is the difference between residential rental property and nonresidential property?§
The main difference is the purpose of use and the tax depreciation period. Residential rental property is used for dwelling purposes and depreciates over 27½ years, while nonresidential property is typically used for business activities and depreciates over 39 years.
Related Terms§
Depreciation§
The process of allocating the cost of tangible property over its useful life for tax purposes. For residential rental property, this period is 27½ years.
Gross Rental Income§
The total rental income received before expenses are deducted.
Online References§
- IRS Guidelines on Depreciation
- Investopedia on Residential Rental Property
- Nolo on Landlord Tax Deductions
Suggested Books for Further Studies§
- “Every Landlord’s Tax Deduction Guide” by Stephen Fishman, J.D.
- “The Book on Rental Property Investing” by Brandon Turner
- “Landlording on Auto-Pilot” by Mike Butler
Fundamentals of Residential Rental Property: Real Estate Basics Quiz§
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