Can I include shared space when calculating expenses/depreciation for a room I rent out in my house? TT instructions say to only use sf of the room; IRS says it's okay.

Forum|Forum|1 year ago
February 8, 2025
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IRS Publication 587 (Business Use of Your Home): While this primarily applies to home office deductions, it uses the same principles for dividing personal vs. business (or rental) use of a property. It explicitly allows a proportional share of common areas to be included when determining business use percentage. The IRS allows reasonable methods of allocation, with square footage being the most common. Are TurboTax instructions incomplete for this issue?

Best answer by AmeliesUncle

@rick-rose1 wrote:
IRS Publication 587 ... It explicitly allows a proportional share of common areas to be included when determining business use percentage.

Can you please point out where it says that? I suspect you may be misreading that.

MAK70

You can allocate shared space for depreciation/expenses when renting out part of your home. Unfortunately, TurboTax only uses the square footage method for entries. You would have to manually calculate and enter the amounts.

AmeliesUncleAnswer

@rick-rose1 wrote:
IRS Publication 587 ... It explicitly allows a proportional share of common areas to be included when determining business use percentage.

Can you please point out where it says that? I suspect you may be misreading that.

rick-rose1Author

From Publication 587 (2024) Business Use of Your Home
Figuring Your Deduction: Using Actual Expenses; “Business Expenses”
"To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Use the resulting percentage to figure the business part of the expenses for operating your entire home.

You can use any reasonable method to determine the business percentage. The following are two commonly used methods for figuring the percentage.

Divide the area (length multiplied by the width) used for business by the total area of your home...."

It's my understanding that the IRS applies the same principles of space allocation to rental spaces, and explicitly allows for proportional allocation of shared spaces in business use, and rental property deductions follow the same logic in Pub 527.
So, I included 100% of the square footage of the rented room + 50% of the shared space SF; then divided by the total SF of the apartment.

AmeliesUncle

@rick-rose1 wrote:

"To find the business percentage, compare the size of the part of your home that you use for business to your whole house. Use the resulting percentage to figure the business part of the expenses for operating your entire home.

It's my understanding that the IRS applies the same principles of space allocation to rental spaces, and explicitly allows for proportional allocation of shared spaces in business use,

Those are two different things.

The way you calculate the percentage could hypothetically be based on something other than square footage. But it still needs to be qualified business space. To be qualified, it needs to be exclusively used for business or rental. You can not include spaces that are also used for personal use.

https://www.irs.gov/publications/p587#en_US_2024_publink1000226294