First, you don't determine anything for "each" room. Square footage is the total of the *entire* floorspace rented out. Period. Additionally, your "rental use percentage" is *one* *hundred* *percent*. During the period of time the space was classified as a rental, it was *one* *hundred* *percent* business use from the first day a renter *COULD* have moved in, until one day *after* the *last* renter moved out.
So if a renter "could" have moved in on Feb 1st and the last renter moved out on March 31st, from Feb 1st through March 31st the space was *one* *hundred* *percent* business use. This is of course, provided that "YOU" did *not* use that space for *your* personal use for one single day from Feb 1st through March 31st.
For example, let's say that Bedroom 1 was available for 100 nights of the year, and was occupied 80 of those nights.
That space was one hundred percent business use for the entire 100 nights, weather it was actually occupied or not.
Bedroom 2 was also available for 100 nights, but was only occupied for 60 nights.
Still one hundred percent business use.
If room one is 15% of the floorspace and room 2 is 10% of the floorspace, then a total of 25% of your floorspace was one hundred percent business use for 100 nights.
Should I list each room as it's own distinct "property"? Combine their results into an average?
Absolutely not. The IRS doesn't tax based on an "average". They want figures you can prove on paper.
Just recently started short-term rentals in my apartment, and want to make sure I'm prepared and keep accurate records.
The important thing is, during the period of time the room or space is "availalble for rent" make sure that "you" do not use that space for "your" personal use for any thing or any reason. Otherwise, the math gets complicated and it's possible to put yourself in a position that only professional help can fix.
Below is some clarification on things you'll need. It's written based on a "whole house" rental. But it does apply to one that is renting out rooms in their primary residence.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property Improvement.
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Repair
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.
