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What’s New
Standard mileage rate. For 2023, the standard mileage
rate for the cost of operating your car, van, pickup, or
panel truck increased to 65.5 cents a mile.
Section 179 deduction dollar limits. For tax years be-
ginning in 2023, the maximum section 179 expense de-
duction is $1,160,000. This limit is reduced by the amount
by which the cost of section 179 property placed in serv-
ice during the tax year exceeds $2,890,000.
Qualified paid sick leave and qualified paid family
leave payroll tax credit. Generally, the credit for quali-
fied sick and family leave wages, as enacted under the
Families First Coronavirus Response Act (FFCRA) and
amended and extended by the COVID-related Tax Relief
Act of 2020, for leave taken after March 31, 2020, and be-
fore April 1, 2021, and the credit for qualified sick and fam-
ily leave wages under sections 3131, 3132, and 3133 of
the Internal Revenue Code, as enacted under the Ameri-
can Rescue Plan Act of 2021 (the ARP), for leave taken
after March 31, 2021, and before October 1, 2021, have
expired. However, employers that pay qualified sick and
family leave wages in 2023 for leave taken after March 31,
2020, and before October 1, 2021, are eligible to claim a
credit for qualified sick and family leave wages in the quar-
ter of 2023 in which the qualified wages were paid. For
more information, see Form 941, lines 11b, 11d, 13c, and
13e; and Form 944, lines 8b, 8d, 10d, and 10f. You must
include the full amount (both the refundable and nonre-
fundable portions) of the credit for qualified sick and family
leave wages in gross income on line 3 or 4 of Schedule E
(Form 1040), as applicable, for the tax year that includes
the last day of any calendar quarter with respect to which
a credit is allowed. A credit is available only if the leave
was taken after March 31, 2020, and before October 1,
2021, and only after the qualified leave wages were paid,
which might, under certain circumstances, not occur until
a quarter after September 30, 2021, including qualifying
quarterly payments made during 2023. Accordingly, all
lines related to qualified sick and family leave wages re-
main on the employment tax returns for 2023.
Note. A credit is available only if the leave was taken
after March 31, 2020, and before October 1, 2021, and
only after the qualified leave wages were paid, which
might, under certain circumstances, not occur until a quar-
ter after September 30, 2021, including qualifying quar-
terly payments made during 2023. Accordingly, all lines re-
lated to qualified sick and family leave wages remain on
the employment tax returns for 2023.
Commercial clean vehicle credit. Businesses that buy
a qualified commercial clean vehicle may qualify for a
clean vehicle tax credit. See Form 8936 and its instruc-
tions for more information.
Bonus depreciation. The bonus depreciation deduction
under section 168(k) begins its phaseout in 2023 with a
reduction of the applicable limit from 100% to 80%.
Reminders
Net Investment Income Tax (NIIT). You may be subject
to the NIIT. NIIT is a 3.8% tax on the lesser of net invest-
ment income or the excess of modified adjusted gross in-
come (MAGI) over the threshold amount. Net investment
income may include rental income and other income from
passive activities. Use Form 8960 to figure this tax. For
more information on NIIT, go to IRS.gov/NIIT.
Form 7205, Energy Efficient Commercial Buildings
Deduction. This form and its separate instructions are
used to claim the section 179D deduction for qualifying
energy efficient commercial building expense(s).
Excess business loss limitation. If you report a loss on
line 26, 32, 37, or 39 of your Schedule E (Form 1040), you
may be subject to a business loss limitation. The disal-
lowed loss resulting from the limitation will not be reflected
on line 26, 32, 37, or 39 of your Schedule E. Instead, use
Form 461 to determine the amount of your excess busi-
ness loss, which will be included as income on Schedule
1 (Form 1040), line 8p. Any disallowed loss resulting from
this limitation will be treated as a net operating loss that
must be carried forward and deducted in a subsequent
year.
See Form 461 and its instructions for details on the ex-
cess business loss limitation.
Photographs of missing children. The Internal Reve-
nue Service is a proud partner with the National Center for
Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in
this publication on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Introduction
Do you own a second house that you rent out all the time?
Do you own a vacation home that you rent out when you
or your family isn't using it?
These are two common types of residential rental activ-
ities discussed in this publication. In most cases, all rental
income must be reported on your tax return, but there are
differences in the expenses you are allowed to deduct and
in the way the rental activity is reported on your return.
Chapter 1 discusses rental-for-profit activity in which
there is no personal use of the property. It examines some
common types of rental income and when each is repor-
ted, as well as some common types of expenses and
which are deductible.
Chapter 2 discusses depreciation as it applies to your
rental real estate activity—what property can be depreci-
ated and how much it can be depreciated.
Chapter 3 covers the reporting of your rental income
and deductions, including casualties and thefts, limitations
on losses, and claiming the correct amount of deprecia-
tion.
2 Publication 527 (2023)