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aranney07

Question

Tax Year Prior to 2020: Do I have to claim income from renting a room in my primary residence if I'm not making any money comparative to costs?

Forum|Forum|6 years ago
June 7, 2019
5 replies
0 views

No text available

TurboTax Self Employed Online

DJS

Employee

Yes, you have to report this income.

If you collect rent from someone who lives in a property that you own – even if it's just a room in your house – you're considered a landlord and must report the rent you receive as taxable income.

The rent is considered income in the year you received it, even if the rent covers a time period in a different year. In other words, your tenants' rent payment for January of 2014 collected in December of 2013 gets reported on your 2013 return, but a 2013 rent payment that wasn't received until 2014 is reported on your 2014 return.

To offset your rental income, the IRS lets you deduct expenses and depreciation related to the rental. We'll show you how to enter both your rental income and expenses below.

Entering rental income and expenses

Are security deposits taxable?

Answers are correct to the best of my ability but do not constitute legal or tax advice.**If this post is helpful please click on "thumbs up"**

Hal_Al

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); then deduct the expenses. TurboTax will do this 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.

It is possible for you to gain a positive tax effect from this activity; If enough of your schedule A deductions (mortgage interest & property tax) are shifted to Schedule E, and your standard deduction becomes bigger than your itemized deductions, you will have effectively saved on taxes.

If you have no mortgage, then there could well be profit involved, which you may have to offset with depreciation that could lead to "recapture" in the future when the property is sold.

isamom1982

Dear @Hal_Al - I saw your post about renting a room in our own residence. I think I followed all your steps (Zero own use, 100% business use, entry of square footage room vs entire house, etc.). But I noticed now that TTax generated a Form 4562 for this room rental that shows a very small "Cost (Net of Land)": It comes to 0.11% of the Cost Net of Land that we entered for our residence even though the square footage share of the room we rent out is equivalent to 28% of the residence.

Is that correct? Should the "Cost" even be pro-rated down on Form 4562. Or should that rather be done to arrive at the "depreciable base" (which I would expect to be 28% of the Cost?

Thank you for clarifying.

AmyC

Employee

If the room is 28% of the house, it could also be paying 28% of the land value and property tax. If you want to remove the land value from the cost basis and not have the room related to the land, you can. Land does not depreciate so by having it as a part of the room, the 4562 depreciation schedule has to remove land before making calculations.

Just be sure you have good notes in your investment notebook so you don't forget in the future what you did.

@isamom1982

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mradamski80

We rent a bedroom in our house. Why does it seem Turbotax has us entering in our mortgage details a second time? I don't see anywhere where it says to split up things like the mortgage interest, property taxes, etc. This seems like it would create inaccuracies in our section for the actual mortgage deduction. But claiming it twice doesn't seem right either as it's the same house, not a separate unit.

Turbotax also seems to have difficulty understanding that although we rented the bedroom 208 days, we also lived in the house far more than 162 days (turbotax wants it to add up to 365 days). Seems Turbotax thinks this bedroom is an entire unit in our house when it's not.

Carl11_2

Employee

For your specific and explicit situation, it is IMPORTANT that you work through the program the way it is designed and intended to be used. If you do not, changes are high your taxes will be wrong and it will be "YOUR FAULT" which is not covered under the TTX 100% Accuracy Guarantee.

WHen used the way it's designed and intended to be used, you can elect to have the program "do the splits" for you for those deductions that go on the SCH E for the portion rented, and those that go on the SCH A for the portion that is not rented. But pay attention to detail.

Some screens ask you for "whole house" expenses, while others will ask you for those expenses that are 100% related to the rental portion only. Generally, all of your rental portion only expenses will be zero, and your "whole house" expenses will be more than $0.

Then, based on the data you enter the program will do the splits "for you" based on the percentage of floor space you rented out, and the number of months it was a rental.

Here's some additional information you *WILL* need for clarification so that you don't make a "your fault" mistake.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out. If renting a room in your home, it's the day "AFTER" you stopped using the space for personal use.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house or use the room/space for personal use for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. If renting a room in your home then it's the number of days you used that room for personal use AFTER you converted that room to a rental. I seriously doubt (though it is possible) that you lived in the house (or used the space if renting a part of your home) as your primary residence, 2nd home, or for personal use after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

Now afer you work through all of the above, I would like you to help me identify a programming error with the program that only applies to *YOUR* specific situation. If you are successful in identifying the error (thus proving their is "in fact" a programming error) then I will help you to "fix" it so that your taxes are correct on this matter and won't delay any refund you may have coming.

Basically, go to IRS Publication 946 - How To Depreciate Property at https://www.irs.gov/pub/irs-pdf/p946.pdf

Then on page 36 of that document use the MACRS worksheet in the right column to manually figure your first year allowed deprecation. Get the percentage rate you need from table A-6 on page 70 of that document. If 2019 was your first year in service, then your percentage rate is in the first row, under the column for the month you placed it in service.

What you figure manually "should" be within $2 of what the program figures. But I'm expecting it to be off by quite a bit more, depending on the month you placed it in service in 2019. So if it's off let me know and I'll tell you what one date entry you made int he program, you need to change so that the program will agree with what you figured manually, within $2.

mradamski80

What about the spot for the real estate taxes? Is that then a $0 entry, or should it be based on the % of the house (sq ft etc) rented?

Also, on the interest paid screen, this is one that seems like, as you mentioned, that the software seems to be doing the auto-calculations for me. Therefore, it seems I enter the same amount from my mortgage document?

lauramb32

I rented a room out of my home from Aug-Dec in 2019. I'm on a screen that says "Enter Common Expenses" and it lists things like "Advertising, Travel, Cleaning, etc." There is a box that says "Utilities." Do I enter all my utilities expenses for 2019, all utilities expenses for aug-Dec, or just 50% for my roommate (or some such calculation based on what she used)? What about the boxes for insurance and real estate taxes?

elle21052105

Can I still get the mortgage interest deduction? I am in a similar boat, I rent out a room to a friend who pays me via check every month. Also, on a side note, I am filing for partial unemployment and probably would be a crime if I did not report this income.