Solved

Closed

Forum|Forum|6 years ago
May 4, 2020
1 reply
0 views

Best answer by Hal_Al

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position stronger.

Here’s what you may be required to do:

Report the income (enter at Rents & Royalties/Income & expenses from Rental Properties); and then deduct the expenses on schedule E. If the room mate has full run of the house, and there's just the 2 of you, then half your expenses are deductible (mortgage interest, property taxes, insurance, utilities, repairs, and depreciation [if needed}). Your net income will usually be less than zero.

What you are NOT allowed to do, because it is your own home (you have "personal use") is claim a loss from this activity, to offset other income. Because of the "personal use rule", your deductions are limited to your income. Net effect ZERO.

You normally enter 365 days personal use (Apr-Dec, in your case).

A

Anonymous

clarify a point. you say "I converted this property from personal use to a rental in 2019" does this mean that after renting the bedroom for just the month of June, at some later date in 2019 you moved out and converted the entire house to rental?

Hal_AlAnswer

Employee

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position stronger.

Here’s what you may be required to do:

Report the income (enter at Rents & Royalties/Income & expenses from Rental Properties); and then deduct the expenses on schedule E. If the room mate has full run of the house, and there's just the 2 of you, then half your expenses are deductible (mortgage interest, property taxes, insurance, utilities, repairs, and depreciation [if needed}). Your net income will usually be less than zero.

What you are NOT allowed to do, because it is your own home (you have "personal use") is claim a loss from this activity, to offset other income. Because of the "personal use rule", your deductions are limited to your income. Net effect ZERO.

You normally enter 365 days personal use (Apr-Dec, in your case).

Hal_Al

Employee

Q. 1. Do I need to divide expenses between Schedule E (rental expenses) and Schedule A

A 1. Yes, divide it yourself, particularly for 2019 since you didn't own it all year. TT can do it, but 2019 will be tricky. Others have complained that TT doesn't do a good job.

Q. 2. What do you mean by Net effect ZERO? Does that mean since I have "personal use" my rental expenses cannot exceed my rental income?

A 2. No. it will only be zero if your expenses exceed rent. You're not allowed to deduct a lost. It's possible to have a profit, but unusual if you have a mortgage.

Q. 3. What should I put on rental days?

A. 3. Put 271 and 94 personal days. This is only a workaround.

TurboTax (TT) does not handle this properly. TT will not limit your deductions to your income. You have to do that manually. TT wants you to enter this as a “not for profit rental”, which does not use Schedule E and puts your expenses on Schedule A (itemized deduction). I'm of the opinion that's not the proper way.