i) note that the following does not apply to cost sharing arrangements.
ii) also note that if isn't a cost sharing arrangement any day rented to anyone at less than fair rental value is considered a personal-use day
IRC section 280A contains the rules of disallowance of certain expenses in connection with business use of home, rental of vacation homes etc
A) was personal use of property more than the greater of (1) 14 days or (2) 10% of rental days
B) if A is no was property rented or held out for rent (ii applies)
B1) if no only the mortgage interest and real estate taxes are deductible and then on schedule A not E rental income and expenses are not teported
B2) if yes prorate expenses. there are two methods a) the general method - days rented to days occupied (Bolton, 51 AFTR 2d 83-305(9th cir 1982) and b) the tax court method - mortgage interest and taxes (and one would assume depreciation) are prorated based on days rented to days in year. other expenses use the general method
C) if A is yes was property rented less than 15 days (ii applies).
C1) if C is yes residence is treated as 100% personal. rental income and expenses are not reported. Mortgage interest and taxes on schedule A
C2) if C is no prorate expenses
how to compute depreciation
use the lower of cost or Fair Market value of property
separate out the land cost or value on the building is deprciablle
use the square footage of the bedroom rented to the square footage of the whole building
you may want to see the following. in this case the taxpayer ran a B&B a portion was pure business use, another portion pure personal use and a portion (dual-use) used at various times personally at other time for business. The taxpayer took a prorata portion of depreciation on the dual-use portion. The court disallowed depreciation on the dual-use in its entirety.
https://bradfordtaxinstitute.com/Endnotes/TC_Memo_2006-33.pdf
