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I rent a room in my house to a friend (not a relative). I charge him less than would this would rent on the marked. Can/should I claim this as a not for profit rental property? What counts as qualified expenses when determining if I am making profit?

If were to put my property on the market to rent I would probably get ~$2500 a month (maybe more). It is a 2 bed/2 bath/2 car garage. I only charge my friend $850/month for his half. I know the mortgage does not count as a qualified expense but things like mortgage interest can. I've come up with ~$700 of things I think count as qualified expenses.

Thanks,

Lisa
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1 Reply
Coleen3
Intuit Alumni

I rent a room in my house to a friend (not a relative). I charge him less than would this would rent on the marked. Can/should I claim this as a not for profit rental property? What counts as qualified expenses when determining if I am making profit?

It is a not-for-profit since you are charging your friend less than you would anyone else. It is a second home. 

No, see below for instructions from the IRS on how to treat this type of property. Since you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. You do not therefore, need to depreciate.

Not Rented for Profit

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

Where to report.   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. If you are filing Form 1040 and you itemize your deductions, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040). Claim your other rental expenses, subject to the rules explained in chapter 1 of Pub. 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

Presumption of profit.   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit.

More information.   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Pub. 535.

 https://www.irs.gov/pub/irs-pdf/p535.pdf 

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