First, do not enter any land when you are only doing a room rental. Second, if you are not renting for a profit, then there are rules for 'Not for Profit' rentals, which is what they were trying to explain at TurboTax Support.
Not for Profit Rental:
If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Where to report. Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8j. If you itemize your deductions, include your mortgage interest (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A. Presumption of profit. If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit.
If you never depreciated the property due to the intent of not for profit during any and all rents, then there is nothing to recapture when you sell your home.
If you decide you are renting the property for a profit: Time used and actions taken for rental purposes would be factors of consideration.
You indicated the space is not used full time for rental activity, but is used by your friends and yourself when you don't rent it. This makes the calculations difficult for the software.
Calculations you should do on your own:
To enter the business use percentage of the cost, for the asset (building only) which is calculated by square feet of the room divided by the total square feet of the home, then multiplied by the following factor: days rented divided by total days available for rent during the year. This is the same percent you would use for any expenses that are indirect meaning they would be for the entire home such as utilities, insurance, property taxes, mortgage insurance. Any expenses specifically for the room and not used for personal purposes would be deductible at 100%.
@LuLuna
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