Carl
Level 15

Investors & landlords

The remodeling adds to your cost basis, and while it will matter for depreciation purposes on the rental portion, it will make it's biggest impact in the future, when/should you ever sell the property.

But first, are you actually renting to someone whom you would refer to as a tenant? Or would this be more aptly described is you helping out a friend where in reality, you're just "sharing expenses" ? If the later, reporting the income as rental will not really benefit you that much - especially if you're not charging within the range the fair market rental values in your area.