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Author: brxkic One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 123155  
Subject: For profit defiinition (3 out of 5 yr rule) Date: 4/15/2006 12:46 PM
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Hello all:
Have a question regarding rental income/ expense. I am renting out a part of my house, which to my estimation will make a very small profit in the best case scenario, and may result in a loss in years with high repair bills. But since I am not using that part of the house, I suppose renting it out will increase cash flow (if reparis are needed, it will be needed regardless of whether I am renting it out or not).

My question is, if I decide to stop renting out the house later (say, when I start a family) after 3-4 years (not 5 years), AND I make a profit in some years and a loss in others, will the IRS then say that all those years the place is for rent will be counted as a not-for-profit activity? How would one interpret that 3-out-of 5 year rule for determining if an activity is for profit or not if one quits the activity before 5 years are up?

Thanks for any advice!
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