Reporting rental income - a few questions (tenants, square footage, 2015)

[RoJl5]

Hi all,

I just have a few specific questions concerning rental revenue. The situation is that I bought my condo in 2015 and started renting out the spare bedroom in March of 2016.

1. From what I've read, I can deduct expenses equal to my renter's share of the condo's total expenses. So if his room is 90 SF and the condo is 900 SF, I could, for instance, deduct $40 of a $400 (annual) internet bill. This seems unfair, however, since we both use the internet and other utilities equally, and he does use the common areas. Is it not possible to deduct 50% of the internet bill, then, since everything is shared?

2. Assuming I'm stuck with the SF rule, can I count the SF of his bathroom? We each have our own that we use exclusively.

3. Do new tile floors and a new water heater qualify as deductible expenses, or are they capital expenditures that increase the value of the propertyy, rather than regular maintenance that can be deducted? What if these improvements were made in 2015, before I began renting - can I carry this expense forward into 2016?

4.Depreciation:
a. So if residential rental can be depreciated over 27.5 years, does the clock “start” when I begin to rent it out? What if I rent it, then live in it myself a few years, then rent it again – does the clock keep stopping and starting?
b. Would a year of having one room rented out be a full year of depreciation, or only if I rent out the whole house?

Thanks all

[kauailover]

You need to consult a tax professional but I'm thinking your condo is not a rental if your just renting out a room.

[Harpaint]

Google "Tax issues when renting out a room in your home" . The NOLO site has good info.

[Diana Holbrook]

Have to agree it sounds a lot more like "having a roommate and sharing expenses", than it does rental income. Did someone tell you you had to claim it as income?

[RoJl5]

Originally Posted by Diana Holbrook

Have to agree it sounds a lot more like "having a roommate and sharing expenses", than it does rental income. Did someone tell you you had to claim it as income?

You absolutely have to declare rental income from a spare bedroom. Do some Googling and you'll see. Rental income is rental income, regardless of if it comes from a spare bedroom or a 100% non-owner occupied property. The penalties of not reporting it (if you get caught) can be serious. I'd think one way they can catch you is if your renter lists your address as their address when they file their return, that would be a red flag. Your renter might even deduct the rent they're paying you if they have a home office, which would be a huge red flag. And of course, an electronic trail exists through your bank records.

Originally Posted by Hairpaint

Google "Tax issues when renting out a room in your home" . The NOLO site has good info.

NOLO does not have very good information, which is why I posted here. Most websites explain 1) why you need to report spare bedroom rental income (the IRS will fine you to death if they catch you cheating) and 2) the very basics of how to do it (what depreciation means, which expenses can be deducted, etc). The questions I asked in this thread are specific and were not answered in any of my searches.

[WorldKlas]

Depreciation has to be repaid upon sale. Quite honestly, i wouldn't declare the income OR the expenses if I simply rented out a room in my home occasionally.

[WyoNewk]

Yes to the bathroom. If your renter has sole use of one of the bathrooms, he's renting it. Include it while counting his square feet. You may be sharing other space, and I don't know if you can count a part of that as rental space or not. (Probably not, but maybe if it's mentioned in the lease/rental agreement.) I think a short visit with your accountant would be a good idea. Bring a list of questions.

I'm also not so sure that depreciation would be worth it, but it's a good question for your accountant. I'm kinda stuck between a rock and a hard place with my one remaining rental, because it's depreciated out and I refinanced it a few years ago. Now I can't afford to sell it because it's not worth what I'd owe in taxes and mortgage payoff. (This is nothing. I've done dumber crap that I won't get into.)

[SmartMoney]

We see boarder income listed on tax returns provided for loan applications - it's actually quite common. There's a loan program where if you have previous had boarder income (on a property you are renting and sub-letting) you can use that boarder income qualifying for a FannieMae HomeReady mortgage, if that boarder is moving with you.

One thing I will almost never include is tax advice, with the exception of, "consult a tax professional" (sooner than later).

[Aquitaine]

I'd think one way they can catch you is if your renter lists your address as their address when they file their return, that would be a red flag.

I am not sure I would worry about this. When I lived in NYC I had a couple years where I had roommates (all of us on the lease splitting the rent) and a couple years where I sub-leased one of the rooms but I was still leasing it from the owner. In both cases, my roommates/sub-tenants would list the address on their tax returns, but you don't say on your tax return to whom you pay rent unless you are writing it off for some reason (like you're a business - probably not applicable here).

There are plenty of scenarios where somebody else lives at your address but it isn't a rental property. As a practical matter, you can do one of two things:

- Don't report the income, AND don't write off any of the 'shared' items (no revenue, no expenses declared - it's a wash)
- Report the income and deduct based on the SF rule.

The 'right thing' is door #2 - report everything correctly.

[Okey Dokie]

Regarding renter deducting "home office expenses" on their 1040......it's always been my understanding in order to claim this, the area has to be used "exclusively" as an office. In this case, maybe the square footage off a desk???? Not too likely.