Rental Property

There are 2 different primary types of rental property; commercial and residential property. Commercial property tends to be spaces for offices or trade. Residential rental properties are essentially homes, apartments, condos, and living spaces. In both cases, the owner of the property does not make personal use of the property but instead rents or leases the property to a tenet. In return, the owner receives payment for the property usually in the form of monthly rental fees.

Commercial and residential rental properties may face different laws, regulations, and taxation.

The United States government defines residential rental properties as the following:

Residential rental property means as defined in Section 168(e)(2)(A) of the Code, any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for the taxable year is rental income from “dwelling units.” For such purpose, a “dwelling unit” means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one half (1/2) of the units in which are used on a transient basis. If any portion of the building or structure is occupied by the taxpayer, the gross rental income for such building or structure includes the rental value of the portion so occupied.

This means that the property must be used for long-term residency as opposed to hotels, dormitories, and the like. The owner must also produce rental income and may not reside in the property.

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