I live in the house I rent, and how can I have repair expenses be deducted for the rented parts of my house?

[ocelotjoy]

Looking for some tax savvy support for filing my expenses related to renting out parts of my house.

Here's the situation. I live in a house and have rented out rooms in my house. I also have an in-law cottage, aka an ADU, in the back of my property. I do not and cannot use the ADU because I rent it out exclusively to someone else. I've had to make some repairs that are exclusive to the ADU. I've also had to make some repairs to the rented rooms. I've also made repairs to parts of the house that everyone uses, such as the laundry machine room. In this last instance, these repairs would be ones that would benefit me because they apply to parts of the house that I also use, and thus are subject to the "personal use" percentage deduction that Turbotax does.

This is my second time filing taxes with my rental expenses included. I'm not really a landlord, just someone who shares their house with others and wants to make sure I file this properly with the IRS because I know the rent I receive is considered income. I know in the past I've had to calculate the percent of the house that is rented out. This is used to calculate which of my expenses are for "personal" use versus for the rental. I'm wondering if there's a way to file my taxes this year where the repairs I've made exclusive to the rented out parts can be fully included in the calculations for determining my net income. For instance, I had to make a very expensive repair that involved replacing a septic pump that services the ADU. This repair cost me $3 grand. This septic pump only serves the ADU, so it is 100% a cost that occurred for my rental and within my rental. When I input this particular expense into Turbotax, I don't want any of this cost to be attributed to my personal use because I actually don't benefit in any way from this repair. Similarly, for the room I rented out in my house, I had to do a major repair to the window inside of that room. It cost around $600 to repair the window inside the room, and I'd want it to be 100% attributed to the rental and thus fully deducted.

How can I make sure expenses like these that occurred 100% within the rented parts of the house, parts that I cannot and do not claim personal use, are fully deducted as a part of using the Turbotax software? Does that make sense? I understand when Turbotax takes some of my expenses and apportions a certain amount of those costs as for my "personal use" and therefore those expenses cannot be included in the calculations to determine my net income (or net loss). I'm trying to ensure that this doesn't happen for expenses that occurred 100% within the rental. Is there a way to do that? If so, what's the way I can do it?

Thanks for the support!

[Vanessa A]

If I am understanding correctly, you OWN the home and have people that you are renting to that live with you.  Why do you say you are not really a landlord?

You have given exclusive use to the ADU to a tenant.  Unless you are not charging the Fair market rental value of the ADU (for example, your child is paying you $100 a month to stay there), then you are a landlord and this is not personal use. This income and the expenses should be reported on Schedule E as rental income and expenses

You can also be a landlord and have tenants live in the same house as you if you have given them exclusive  use of a part of the house.  This is where you need to determine if it is considered cost-sharing or if you are renting rooms out to tenants.  If you are cost sharing, and there is NOT a tenant landlord relationship, then all the repairs would be considered personal property repairs and are not deductible.  You would not report the income if they are just paying their share and you would not report the expenses. 

If you have a landlord tenant relationship, and the one window was in a room that a tenant is renting and they have exclusive use of that room, then this would be a rental repair. You would also be able to deduct the expenses that are related to the portion of the home that they are renting such as utilities.  

Renting Out Part of Property

[ocelotjoy]

Hi! Yes, to clarify, I own the home. What I meant about being a landlord is that I'm not a full out-and-out landlord because I also live in the home that I'm renting out parts. I'm aware that I can deduct expenses and the Turbotax software does prepare a Schedule E. That's what I've been doing. What's tricky about my situation is that I have parts of my property that can be considered exclusively a rental property (the ADU) and then I've rented out a room in my own house where I share space with the tenant.

My question is around the fact that in the past when I'm doing a Schedule E, Turbotax has asked me what percent of my house I rent out since I'm a combined use case. I took the property square footage, and the ADU is roughly 30% of my total property square footage. But that would mean that the software assumes that for the $3K repair I did for the ADU, that 70% of that repair is not eligible for deduction. Even though the ADU is 100% for the tenant and I don't use it whatsoever. I'm trying to figure out how to answer the Turbotax questions differently so that this property square footage calcuation isn't applied to expenses for the ADU.

How do I make sure that these expenses for the ADU are fully deducted? It doesn't seem like I'm selecting the right options in answering the Turbotax software to set it up for where the ADU expenses can 100% be applied to it. Does that make sense?

[RobertB4444]

When you are entering your expenses into the rental section you will input everything that is a rental expense into the correct category.  

After you have finished entering all of the expenses related to the properties that are shared you will click continue and enter the mortgage interest and continue again and you will get to a screen that says "Any Miscellaneous Expenses?" and has boxes for descriptions as well as amounts.  It also has a column labeled "Allocation %".  If you type '100' into the allocation box then it will make the expense 100% to the rental and not spread it out as partially personal.

@ocelotjoy 

[ocelotjoy]

Thanks for explaining this!

So I should basically keep out the expenses that are solely for the ADU from the other categories of expenses, and then use the "Any Miscellaneous expenses?" option to put the expenses that are solely for the ADU there?

Put another way, whatever I put in the general rental category expenses will be subject to the rental/personal use split. BUT what I put in the Miscellaneous expenses option and allocate 100% to the ADU will not be subject to that splitting.

Am I understanding correctly? Appreciate you for helping me literally split these hairs for the IRS 😆

[MaryK4]

Correct- but this is more of a TurboTax thing- you have to indicate which ones you are splitting and the ones that are dedicated to the rental part.  @ocelotjoy