I rent out a room in the house that I own, as well as live in this house. What deductions am I eligible for?

[Coleen3]

You can deduct, for that room of the house, items necessary to produce income. Mortgage interest, property taxes and PMI are normally deducted on Schedule A anyway, so these will be prorated on both Schedules A and E. Expenses that exclusive rental expenses still have to be prorated, you just can't take the personal portion on Schedule A.

When you're answer the question regarding how many days is a room in your house rented, answer the number of days rented (258) and how many days you used that room personally the rest of the year (107). You can't rent it and use it personally at the same time. If it was rented all year, put 365.

Screens to take notice of in the program:

"Do any of These Situations apply to This Property"

Select "I rent out part of my home".

When you marked the box for TurboTax to allocate per the percentage of the business portion of a mixed-use property the expenses are only entered one time in the rental section and TurboTax will allocate correctly to personal Schedule A and business to Schedule E according to the percent you entered.

Yes, to let TurboTax calculate the expenses for you.

On screen "enter use percentage" this where the % goes for TurboTax to do the calculation.

Enter rental use percentage.

TurboTax will flow personal to Schedule A and rental to Schedule E.

Only the exclusive used are is considered rental area. Common area is available to all and is not a factor in allocation of expenses.

How to divide expenses.  If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. You can use any reasonable method for dividing the expense. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home.  

See the link below for greater detail.    

http://www.irs.gov/publications/p527/ch04.html#en_US_2015_publink1000219159

[bellef22]

Thanks for the help! Follow up questions: I've done some improvements, such as painting, new cabinets, installed lighting, new furniture, in the common areas of the house. Can I deduct a portion of all that as well?

[Coleen3]

No. The only personal deductions are the ones listed above.

[bellef22]

What about expenses to the upkeep of the exterior of the house, like lawn mowing and mulch and things like that?

[Coleen3]

The rule is, if it affects the house as a whole, prorate. If it has nothing to do with the rented room, no deduction. If it is exclusively the rented room, 100% deductible. You could argue that to attract renters, you need the place to look presentable, but it is not a definite yes to that question.

[valeriegor]

Follow up question: "On screen "enter use percentage" this where the % goes for TurboTax to do the calculation." <- this no longer exists. I can't find enter use percentage anywhere. I need to show that i am not only renting the room "part of the year", but also that I am renting part of the house. I cannot find ANYWHERE where I can enter percentage. Even though turbo tax says I need to calculate "my own percentage" of mortage, etc, it only asks for those values directly from 1098 form. I used to be able to just enter percentage of the house and turbo tax automatically allocated mortgage interest, etc between schedule A and schedule E.

[jimb108]

I am in this exact same circumstance. Can someone please reply 

[KarenJ2]

In TurboTax you would enter on the screen:  Do Any of These Situation Apply to this Property?

you need to check the box, I rent out part of my home

A few screens later you can indicate "Yes" that you will let TurboTax Calculate Your Expense Deductions for You.  Another question will appear on the screen that states:

Just enter the percentage of your property that was rented?  

Then you can enter your rental income and enter your expenses (100% of the expense) in the Expenses section. TurboTax will allocate the amount for your itemized deductions so do not also enter them there.

Your rental percentage is the percentage of your property that you're renting out. To figure out your rental percentage, divide the square footage of the portion you're renting out by the total square footage of your property.

Example: Serafina is renting out a room that's 140 square feet. The total square footage of the property is 1,400 square feet. 140 divided by 1,400 is 0.10 or 10%. This means Serafina's rental percentage is 10%.

[Hal_Al]

 You report the rent received as income (on Sch. E). However your deductible expenses will most likely exceed your income, so you'll have no net taxable income.. Because this is your personal residence (in addition to being a rental property); and you use it most of the year (the 14 day or 10% rule), you are precluded from claiming any rental losses. You are only allowed to deduct expenses up to the amount of the income. Almost everybody in your situation comes out with a zero sum for tax purposes.

http://blogs.hrblock.com/2012/08/16/how-renting-out-your-extra-bedrooms-affects-your-taxes/ Which says: ”However, one catch is that if the property is used as a home (defined above), then deductible expenses are limited to rental income. This means you cannot have a rental loss that lowers the tax owed on your other income, even if the rental activity turns out to be more expensive than you originally thought.”

[TacyCat1]

What if the person to whom I'm renting has 100% access to all parts of the condo except my bedroom? Do I include everything except my bedroom in the square footage, or only the part that is exclusively theirs? This is my first time renting out a bedroom and I'm finding it confusing.

[VT Homestead]

 "On screen "enter use percentage" this where the % goes for TurboTax to do the calculation." <- No one ever replied but this auto calculation feature no longer exists. I can't find a place to enter use percentage anywhere. I need to show that i am not only renting the room "part of the year", but also that I am renting part of the house. I cannot find ANYWHERE where I can enter percentage. Even though turbo tax says I need to calculate "my own percentage" of mortage, etc, it only asks for those values directly from 1098 form. I used to be able to just enter percentage of the house and turbo tax automatically allocated mortgage interest, etc between schedule A and schedule E. Can someone please reply. Do we now have to calculate this percentage on our own now?

[VT Homestead]

@KarenJ2 This feature is not available if you select that you have a an home office. Why is that the case?

[PatriciaV]

According to the On-Demand Guidance for renting out part of your home, 

If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

You do not have to divide the expenses that belong only to the rental part of your property. For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense.

You can use any reasonable method for dividing the expense. The most common methods for dividing an expense are based on the number of rooms in your home or based on the square footage of your home.

TurboTax offers to calculate the allocated expenses for you if you check the Yes box on the page "Let Us Calculate Your Expense Deductions for You" and enter your calculated Rental Use Percentage. Under Income & Expenses, you are prompted to Enter Common Expenses (ie: expenses shared with the entire home). If you missed this question, return to the Property Profile and work through that section again.

The IRS considers rental activities as a passive activity and does not allow the home office deduction on Schedule E. You do have the option of reporting office expenses (supplies & services) as a Rental Expense. The home office deduction remains a hot topic for the IRS. Use your best judgement.

[hr15]

It looks to me like the software interface is glitchy. I have the same scenario as the rest of these people (renting out some rooms, needing to take only the fraction of the deduction). When you are on the page called "Review Your Rental Property Info" and you go in to edit the "Situations" section and check off rented "Part of Home" there were times that it asked "Do you want to calculate [this] yourself" and if you selected for turbo tax to do the calculation it would then prompt to enter the percentage of the home rented. But the majority of the time it would NOT give that page. The only way I could get it back was by deleting the rental and starting over and selecting ONLY "Part of the Home". I just bit the bullet and will enter the correct deduction amounts myself.

Bottom line is that this is an ongoing issue. Seems to be a software issue and is going to be problematic for lots of folks who just trust the software to be correct and didn't learn the tax rules themselves and do the calculations on their own. They are going to get larger refunds than they should have and if audited will be an issue.

Spoke to customer support today and was told that in order to "get my answer" to navigating the software I would need to upgrade to live (+$100) despite the issue being a software issue and not a tax question issue.

Turbotax, can you address this?