Multi Family home asset depreciation

[Mike9891]

Hello. I own a two family home where I rent one unit and live in the other. I’d like to depreciate the rental assets. Am I able to depreciate as 100% business? Or will it need to be 50%? On the SCH E, I’m checking the box live in multi family where you rent. So I believe that splitting the expenses appropriately but does that impact what I chose for depreciation? Thanks

[Carl]

There are two ways to report this in the TTX program. One way is to report it as a multi-family unit where one of the units is your primary residence. I personally do not recommend that method.

The other way, and the one I recommend, is where you treat the rented unit "as if" if were it's own physically separate piece of property. This is assuming that each unit has all of it's utilities billed separate. So each unit has it's own electric meter, water meter, gas meter, etc.

With this, you set it up by just splitting the cost basis of the property between the two units based on the percentage of floor space of the total, that is the unit being rented.

In my opinion (and we know what opinions are like), this makes things easier on the tax front when one of four things happens in the future.

 - You convert the unit to personal use.

 - You sell the property or sell one unit.

 - You convert the unit you're living in now, to a rental.

 - You die.

[Mike9891]

Thanks Carl!

Unfortunately the heat utility is a single bill paid by owner. Would this prevent me use the recommended method?

[Carl]

No. You just pro-rate that bill to claim the percentage equal to the percentage of floor space allocated to the rental unit. So if the two units are identical, you can claim 50% of that expense on the SCH E. 

If you pass that cost on to the renter, then whatever the renter pays you is included as rental income. But it will be offset by the utility cost allocated to the SCH E, that you pay.