Nestor and Greta own their principal residence in Pleasant Hill, California. They did not rent it out at anytime during 2020. They also own two other properties: a rental property in Daly City, California, and a vacation home in Sausalito, California. As described below, both of these properties wereto a lesser or greater extentpartly used for rental purposes and partly for personal purposes.

For the Pleasant Hill residence, in addition to paying mortgage interest, Nestor and Greta also paid $8,900 of property tax to Contra Costa county.

For the Daly City rental home, refer to Form 1098 for the address. For the first 28 days of 2020, Gretas brother lived in the home rent-free. For 15 days, the home remained vacant. Nestor and Greta spent four days doing maintenance to prepare the place for rental use. Then, for the last 318 days, they rented the home to a family that paid a total of $48,800 rent directly to Nestor and Greta. In addition to mortgage interest reported on Form 1098, Nestor and Greta paid the following expenses during the year:

San Mateo county property tax $6,000

Maintenance expense $1,500

Insurance expense $2,000

Utilities $1,250

They also calculated the depreciation expense for the full year would be $9,000.

They also calculated the depreciation expense for the full year would be $11,800. In addition, referring to their tax return workpapers from last year, you discover that they had a carryover of $9,700 of depreciation expense from rental use of the Sausalito home that they were unable to deduct in the prior year. (Specifically, you found this figure on line 7b of last years Worksheet 5-1).

When you inquire whether they hired anyone to work on either of the properties for whom they would need to issue a Form 1099, Nestor and Greta assure you they did not.

Finally, you discuss with Nestor and Greta whether they want to treat the income from the Daly City rental property as qualified business income and claim the new deduction. You explained that there is a risk the IRS would challenge this position because they did not spend 250 hours managing the property as needed to qualify under the safe harbor in IRS Notice 2019-07. They decide not to claim the deduction.

PART I. Rental Use Percentage A. B. C. D. E. 1. 2a, ch 2e. A. Total days avalable for rent at fair rental price B. Total days avadable for rent (line A) but not rented c. Total days of rental use. Subtract line B from In A D. Total days of personal use (induding days rented at less than fair rental price) E Total days of rental and personal use. Add lines and D F. Percentage of expenses allowed for rental. Divide line C by line E PART II. Allowable Rental Expenses 1. Enter rents received 2a. Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums, See instructions b. Enter the rental portion of deductible real estate taxes. See instructions c. Enter the rental portion of deductible casualy and theft losses. See instructions d. Enter direct rental expenses. See instructions. e. Fully deductible rental expenses. Add Ines 2a-2d. Enter here and on the appropriate lines on Schedule E. See instructions 3. Subtract fne 2e from line 1. If zero or less, enter-O- 4a. Enter the rental portion of expenses directly related to operating or maintaining the dwelling unit (such as repairs, insurance, and utilities) b. Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums. See Instructions ... C. Enter the rental portion of excess real estate taxes. See instructions d. Carryover of operating expenses from 2018 worksheet e. Add lines 4-1 1. Allowable expenses. Enter the smaller of line 3 or line 4e. See instructions 5. Subtract line 4f from Ine 3. If zero or less, enter - - 6a. Enter the rental portion of excess casualty and theft Josses. See instructions . Enter the rental portion of depreciation of the dwelling unit C. Carryover of excess casualty and theft losses and depreciation from 2018 worksheet d. Add lines 6a-60 e. Allowable excess casualty and theft losses and depreciation. Enter the smaller of line 5 or line 6d. See instructions PART III. Carryover of Unallowed Expenses to Next Year 7a. Operating expenses to be carried over to next year. Subtract line 4f from Ine 4e Excess casualty and theft losses and depreciation to be carried over to next year. Subtract Ine 6e from line 6 4a- b PAPE 41. 5. 6a, b . 7a. b. Line 2b. If you are claiming the standard deduction, do not report an amount on line 2b; instead, report the rental portion of your real estate taxes on line 4c. If you are itemizing your deductions on Schedule A, figure the amount to report on line 2b by using the following steps. Step 1. If the total of your state and local income (or, if elected on your Schedule A, general sales) taxes, real estate taxes, and personal property taxes is not more than $10,000 ($5,000 if married filing separately), enter the rental portion of the real estate taxes attributable to the dwelling unit you are renting on line 2b. Step 2. If you do not meet the condition of Step 1, use the following worksheet to figure the amount to include on line 2b. Line 2b Worksheet 1. Enter your state and local income taxes (or, if you elect on Schedule A, your state and local general sales taxes) that are personal expenses 2. Enter all the state and local real estate taxes you paid on the dwelling unit you are renting ... 3. Enter any other state and local real estate taxes you paid that are a personal expense and not included in line 2 4. Enter your state and local personal property taxes that are a personal expense 5. Add lines 1 through 4 ... 6. Multiply line 2 by the percentage of expenses allowed for rental (Part I, line F) 7. Subtract line 6 from line 5 8. Subtract line 7 from $10,000 ($5,000 if married filing separately). If zero or less, enter-O- 9, Real estate taxes reported on line 2b. Enter the smaller of line 6 or line 8 here and on line 2b.. 10. Excess real estate taxes reported on line 4c, Subtract line 9 from line 6 Note. Be sure to report only the personal portion of your real estate taxes on line 5b of Schedule A. The personal portion of real estate taxes on the dwelling unit doesn't include the rental portion you reported on line 2b of this Worksheet 5-1 or any portion that you deducted on other forms, such as Schedule C or F. PART I. Rental Use Percentage A. B. C. D. E. 1. 2a, ch 2e. A. Total days avalable for rent at fair rental price B. Total days avadable for rent (line A) but not rented c. Total days of rental use. Subtract line B from In A D. Total days of personal use (induding days rented at less than fair rental price) E Total days of rental and personal use. Add lines and D F. Percentage of expenses allowed for rental. Divide line C by line E PART II. Allowable Rental Expenses 1. Enter rents received 2a. Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums, See instructions b. Enter the rental portion of deductible real estate taxes. See instructions c. Enter the rental portion of deductible casualy and theft losses. See instructions d. Enter direct rental expenses. See instructions. e. Fully deductible rental expenses. Add Ines 2a-2d. Enter here and on the appropriate lines on Schedule E. See instructions 3. Subtract fne 2e from line 1. If zero or less, enter-O- 4a. Enter the rental portion of expenses directly related to operating or maintaining the dwelling unit (such as repairs, insurance, and utilities) b. Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums. See Instructions ... C. Enter the rental portion of excess real estate taxes. See instructions d. Carryover of operating expenses from 2018 worksheet e. Add lines 4-1 1. Allowable expenses. Enter the smaller of line 3 or line 4e. See instructions 5. Subtract line 4f from Ine 3. If zero or less, enter - - 6a. Enter the rental portion of excess casualty and theft Josses. See instructions . Enter the rental portion of depreciation of the dwelling unit C. Carryover of excess casualty and theft losses and depreciation from 2018 worksheet d. Add lines 6a-60 e. Allowable excess casualty and theft losses and depreciation. Enter the smaller of line 5 or line 6d. See instructions PART III. Carryover of Unallowed Expenses to Next Year 7a. Operating expenses to be carried over to next year. Subtract line 4f from Ine 4e Excess casualty and theft losses and depreciation to be carried over to next year. Subtract Ine 6e from line 6 4a- b PAPE 41. 5. 6a, b . 7a. b. Line 2b. If you are claiming the standard deduction, do not report an amount on line 2b; instead, report the rental portion of your real estate taxes on line 4c. If you are itemizing your deductions on Schedule A, figure the amount to report on line 2b by using the following steps. Step 1. If the total of your state and local income (or, if elected on your Schedule A, general sales) taxes, real estate taxes, and personal property taxes is not more than $10,000 ($5,000 if married filing separately), enter the rental portion of the real estate taxes attributable to the dwelling unit you are renting on line 2b. Step 2. If you do not meet the condition of Step 1, use the following worksheet to figure the amount to include on line 2b. Line 2b Worksheet 1. Enter your state and local income taxes (or, if you elect on Schedule A, your state and local general sales taxes) that are personal expenses 2. Enter all the state and local real estate taxes you paid on the dwelling unit you are renting ... 3. Enter any other state and local real estate taxes you paid that are a personal expense and not included in line 2 4. Enter your state and local personal property taxes that are a personal expense 5. Add lines 1 through 4 ... 6. Multiply line 2 by the percentage of expenses allowed for rental (Part I, line F) 7. Subtract line 6 from line 5 8. Subtract line 7 from $10,000 ($5,000 if married filing separately). If zero or less, enter-O- 9, Real estate taxes reported on line 2b. Enter the smaller of line 6 or line 8 here and on line 2b.. 10. Excess real estate taxes reported on line 4c, Subtract line 9 from line 6 Note. Be sure to report only the personal portion of your real estate taxes on line 5b of Schedule A. The personal portion of real estate taxes on the dwelling unit doesn't include the rental portion you reported on line 2b of this Worksheet 5-1 or any portion that you deducted on other forms, such as Schedule C or F