Part 1 Rental, Royalty, Passive and Pass-Through Income question: Cole lives

Part 1Rental, Royalty, Passive and Pass-Through Income

Cole lives in his home all year except 12 days in 2025, when he rented it to golf fans for $9,000. How is the $9,000 treated?

A It is taxable, but only above the $2,500 minimum
B It is reported as other income on Schedule 1 without any expenses
C It is reported on Schedule E, reduced by the rental share of expenses
D It is excluded from income, and no rental expenses are deductible

Show the answer and explanation

Answer: D. It is excluded from income, and no rental expenses are deductible

If a dwelling unit used as a residence is rented for fewer than 15 days during the year, the rental income is not included in gross income and no rental expenses are deducted (mortgage interest and taxes remain deductible as itemized deductions in the usual way). Cole rented for 12 days, so the $9,000 is tax-free. Source: IRC 280A(g); Pub. 527 (2025), Used as a home but rented less than 15 days. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Reporting short-term rental income that the 14-day rule excludes.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.