If one rents a bdrm out, not a rental prop at 1/3 of fair market

[unchartedseas]

How is the rental income thus reported on a 1099-MISC recorded?    Schedule C or E?  


The way the law or the TurboTax app is written / it’s treated as if I rented out my entire house even tho I selected rented “part of house” and when I say “0” days rented at fair market and that I resided at same address for past 365 days, TurboTax tells me that “because I rented my place out for less than 15 days (not true, I rented out a room below market much of the year),  and once TurboTax clarifies that it’s indeed my personal residence, not rental property, the app at that point kicks me back to “wages and income” cause the two 1099-MISC are reported as rental income, and from there I am told I need to fix and specify if it’s a schedule C or E -   a loop that was enough of a problem for TurboTax they would allow me to e-file.

[Hal_Al]

Why, and from whom, are you getting a form 1099-Misc for renting out a room?

Roommate rental

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position stronger.

Here’s what you may be required to do:

Report the income (enter at Rents & Royalties/Income & expenses from Rental Properties); and then deduct the expenses on schedule E. If the room mate has full run of the house, and there's just the 2 of you, then half your expenses are deductible (mortgage interest, property taxes, insurance, utilities, repairs, and depreciation [if needed}). Your net income will usually be less than zero.

What you are NOT allowed to do, because it is your own home (you have "personal use") is claim a loss from this activity, to offset other income. Because of the "personal use rule", your deductions are limited to your income. Net effect ZERO.

TurboTax (TT) does not handle this properly. TT will not limit your deductions to your income. You have to do that manually. TT wants you to enter this as a “not for profit rental”, which does not use Schedule E and puts your expenses on Schedule A (itemized deduction). I'm of the opinion that's not the proper way.

Enter the 1099-Misc, with the amount in box 1. Tell TT it's from rental real estate.  Later at Rental Properties, enter your expenses and info. 

[AmeliesUncle]

Why are you renting it at 1/3 of Fair Rental Value?  Is it to a close relative?  The details matter.

[KentuckyTax]

Are you sure you aren't renting the "room" out at market value?   Are you renting the room out to a friend or family sig cheaper than a typical roommate would pay.

Assuming you own the home:  Just enter all numbers and expenses at 50%.  

If you are renting the home from someone else,  I would just record the same number of expenses and they will net out to Zero.  I.e.  If you are paying $900 a month rent and renting a room for $400,  just record a rent expense of $400 per month.   A roommate's rent is a "Return on Capital" provided rooms aren't being marked up to create a profit.