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Old 03-01-2013, 01:55 PM
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renting rooms and sharing kitchen space in my home

I am renting out 3 rooms in my residential home plus share the kitchen as part of the rental agreement. Besides rent, my tenants also pay 60% of all the utilities. What IRS form do I use to report this income? What else can I deduct as expenses? I am still paying mortgage, property taxes, and home insurance for this property.



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Old 03-02-2013, 06:08 AM
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“I am renting out 3 rooms in my residential home plus share the kitchen as part of the rental agreement. Besides rent, my tenants also pay 60% of all the utilities. What IRS form do I use to report this income?”=====You need to report your rental income/expenses on Sch E and on 1040 line 17. As you're renting out atherooms in the home , you must also indicate whether you/your family use the property for personal purposes; Document your rental income using Sch E, Part I. Report your total income, expenses, and depreciation for the home. Answer Line 2, which asks: "For each rental real estate property listed on line 1, did you or your family use it during the tax year for personal purposes for more than the greater of 14 days or 10 percent of the total days rented at fair rental value?" , According to IRS.gov, if you rented your property fewer than 15 days during the year, do not include any rental income in your income. If, on the other hand, you rented 15 days or more during the year, include all your rental income in your income. You can enter any depreciation you wish to claim on Sch E, page 1, line 20.


“What else can I deduct as expenses? I am still paying mortgage, property taxes, and home insurance for this property”===== You can deduct some rental expenses from your rental income. You can deduct expenses you paid prior to the rental, like maintaining the area prior to renting it out. For example, if you had to make electrical repairs on the room while it was empty, you can deduct those repairs as an expense. If you use the rental property for personal use as well -- perhaps you share the same kitchen space with your lodger -- then you must divide the expenses between rental use and personal use; You can't deduct the cost of an improvement to your rented out room. For example, if you are renting out a room to a lodger and the room has an attached bathroom, you can't deduct any expenses associated with remodeling the bathroom. You can deduct money spent for painting, fixing the floor, plastering and repairing leaks but you can't deduct money spent for installing new fixtures on cabinets. If you make repairs during a remodeling job, the whole project is counted as an improvement. And is added to your basis of your home, then you need to depreciate it for the next 27.5 years. ALSO, when yu dispose of the home(whether as a residence or a rental pty), you must recapture unrecaptured depre taken previously on your return and this ‘d reduce your LTCG; the recaptured unrecap depre is usually taxed at 25 % as long as your marginal tax rate is 25% or higher.FOR EXAMPLE, if the rooms are rented for 15 days or more and are used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, the rooms are treated as rental pty. The expenses must then be allocated between the personal and rental days. If this is the case the rental expense may exceed then rental income and the resulting loss would be deducted against other income, subject to passive loss rules.Simply, assume that you rent the rooms for 20 days and use them for 10 days for personal purposes, and rental income is $500 then your use of the rooms is not more than 14 days or 10% of the days rented it is treated as rental pty and partially persona residence. Allocation of expenses associated with the home is based on the number of days of rental or personal use comparable to the total number of days of use. You r personal use percentage is 33.33%(10/30) and rental use is 66.67%(20/30) so rental income and examples neeed to allocate to both rental/[personal use; for example your rental exp is $700(re tax and interest $300; util $300 and depre $100), then you can deduct $231;33.33%*$700 on Sch E(you must deduct r/e taxes and interest first; then you must deduct utilities and maint and finally you must deduct depre exp).You can deduct $100 of re tax and int(33.33%*300) on Sch E and $200 on Sch A of 1040; you can deduct $100 of util and maint/repair on Sch E and you ca’t deduct $200 on Sch A of 1040 also you can deduct $33.33 of depreciation. You can’t deduct the the remaining depre exp of $66.67 on Sch A either. On Sch A of 1040 you can deduct only r/e taxes and mort interest.In this example your net rental income is $266.67; $500-$100-$100-$33.33=266.67. The depreciable basisi of the rooms is; total sq ft of rooms divided by the total improvement sq ft(excl land as land ins not depreciated) and multiply cost of the home, I mean basis of the home; if it is 70% and basis of the home is $100,000 then your depreciable basis is $70K;70% * $100K.then you divide it by 27.5; annual depre exp is $254;$70K/27.5; $254 divided by three rooms is$85 per room per year and so on~~



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