Tax Implications for Personal Use Vacation Rental

[Jacob Hinchman]

Hello,

      I have purchased a condo to use as a short-term rental. I would like to stay at the rental every once and a while. I have read many articles about personal use, residency, and taxes. But still have some questions, especially the differences between expenses vs passive losses. I am expecting to have net loss over the next couple of years. Also, I do not qualify as a real-estate professional and make over the $150K+ on W-2 income. Lets look at two situations:

Here is a general summary of the IRS personal residence rule:

If a taxpayer uses a property for personal purposes for the greater of 14 days or 10% of the days during the tax year it is rented at a fair rental, the property is treated as a personal residence. 6 If a property that qualifies as a personal residence is rented for more than 15 days, the deduction of expenses related to the property is limited to the amount of rental income received during the tax year, and there is an ordering of the allowable deductions. Excess rental losses are carried over to the next tax year. The personal use portion of mortgage interest and property taxes is passed through to the owners.

Situation 1:  I use the condo for 5 days, rent it for 95 days.  So I use it 5% of the time.

-- Can I deduction a 100% of the expenses, or Do I pro-rate these expenses by 95% ?

-- Do I pass through 5% of the property tax and mortgage to my person deductions?

-- Do I pro-rate the depreciation by 95% ?

-- Due to rental losses(depreciation, mortgage interest, etc) carry over to my personal income?  If not, can I carry the losses forward several years?

-- Can business expenses( tax prep, accounting, training, ?travel to visit rental?) carry over to my personal income?

Situation 2: I stay at the place 15 days, I rent the place for 85 days.  So I use it 15% of the time thus making it a personal residence.

-- Do I pro-rate all the expenses by 85% ?  Or, are some of the expenses such as property taxes 100% deductible?

-- Do I pass through 15% of the property tax and mortgage to my person deductions?

-- Do I pro-rate the depreciation by 85% ?

-- Due to rental losses(depreciation, mortgage interest, etc) carry over to my personal income? If not, can I carry the losses forward several years?

-- Can business expenses( tax prep, accounting, training, ?travel to visit rental?) carry over to my personal income?

Finally one of the things I am really confused by is the statement: 

the deduction of expenses related to the property is limited to the amount of rental income received during the tax year, and there is an ordering of the allowable deductions. Excess rental losses are carried over to the next tax year.

-- How does this differ from the normal Passive losses rules?

Thanks,

Jake