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Generally, the self-rental rules apply to taxpayers who rent property to a trade or business in which they materially participate. In such cases the income is treated as non-passive and losses as passive. This applies property-by-property even if the properties have been grouped as a single economic activity. However, where the property is the taxpayer’s personal residence and the rental period is less than 15 days during the year, the rental would fall under the vacation home rental rules, and the income would not be included in income and no rental expenses would be allowed.
Rev Proc 2011-47 & Notice 2011-81 details the rules, effective October 1, 2011, for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meals and incidentals that an employer (or third party) reimburses, and explains how an employee or self-employed individual may use the “standard meal allowance” but not the lodging per diem.
The home office deduction is limited to the business activity’s gross income, but many people mistakenly believe that the limitation is the activity’s net income. The gross income limitation is actually the gross sales less the cost of goods sold, the business portion of the home’s mortgage interest and taxes, and the otherwise deductible business expenses that are not related to the home’s business use. (Publication 587 includes a worksheet on this calculation.)