I would say that if the parking lot was inside the building, there would be depreciable cost associated with it. On the other hand if on the ground outside the building it's non-depreciable land. Even if it were inside the building, trying to come up with a cost, outside of getting an appraisal, would be virtually impossible. (i don't think the IRS would buy allocating cost by using square footage of parking space to total square feet of unit and space). Personally I wouldn't bother. regardless of inside or outside allocable costs such as interest, taxes, hoa dues, etc would be deductible, but again the issue is how to allocate them. i'm guessing that if it were depreciable and costs were allocated, you would end up with a loss each year. this would create an issue, since the IRS could argue it's not for profit/hobby loss unless you could show there would be an overall profit upon sale of your condo. This could be difficult be cause you would have to allocate sales price and sales costs between the condo and rental space. if you couldn't prove this and the IRS invoked hobby loss rules, all allocated expenses would be disallowed except for those that could go on schedule A such as taxes and interest (for hobbies after 2018 all income is taxable but the expenses are not deductible (hobby expenses prior to 2018 went on schedule A but the deduction was eliminated in for 2018-2025).
so in summary what would i do. report the rent on schedule E and just deduct on schedule E just direct expenses (ie expenses that you could show relate only to the parking space) this is no problem if you just report the income on line 21 of schedule 1.
