Owner-occupancy rental - Treatment of Expenses

[gavynm11]

I am currently going for a house where the title would be solely in my name, and I would rent out rooms/space to 4 other people.

As of now, I have it figured out that Mortgage Interest, Insurance, and Taxes must be separated into both Schedule E deductions and Schedule A deductions based on number of rooms occupied. For example, there are 12 total rooms, 6 of which are Tenant rooms, 4 being common areas, and 2 being landlord. With this, the realization percentage is 66.67% (common areas being counted as half-rooms). Multiply this to the total annual costs and you have your breakouts.

But when it comes to utility cost specifically, I am seeing mixed guidance on what to do here. Some sources state that, "you can split them "per-person". [In a different example] With 2 of the four occupants being renters, you can allocate 50% of your utility expenses (water, gas, electric, cable) to the rental". While others state, "Any expenses for the tenants exclusive rooms are fully deductible as rental expenses". How I interpret this, is that in the first way, no matter the arrangement of the house, you have a per person basis in the utilital use. However, in the second you do manual calculations of either the number of rooms or total sq footage to the rental sq footage (unless there is an easy way to track specific costs to rooms like electricity just for one room).

So my main question is, per current IRS code, would I be allowed to treat Utilities like Water, Electricity, Gas, and Trash as an equally allocatable expense to each tenant (subtracting myself), or do I have to calculate the total tenant-occupied space and multiply by that value? Secondly, I am aware of the phone line example (being that a phone line isn't deductible unless it's a dedicated line for tenants), but does it apply to the internet making it non-deductible as I would be using it (same question for trash)? Lastly, would I be allowed to use the room method for the Mortgage Interest, insurance, and property taxes but the person method for the utilities or would the IRS want the same method be used in both?

Side note: to visualize the difference in reporting, given the first method utilities are deductible at 80% of total costs (4 out of 5 residents are tenants) while in the second room method, they are deductible at 66.67% (8 out of 12 rooms are tenant owned).

Thank you in advance for your insights and help here!

[MaryK4]

You can choose to equally allocatable expense to each tenant instead of using the total tenant-occupied space and multiply by that value.  Because you are also living in the space, you should include yourself in the calculation.  If you charge the tenants separately for the utilities, you may want your deduction method to match so the income follows for recordkeeping.  

The internet and trash can be divided like the other utilities and not like the telephone as long as all the tenants have use of the services.  

You can choose to use different methods of diving the expenses, just be sure to keep records of how each is being calculated with your tax records.  

You can and should use the best available method, so as indicated in your side note, it would be advantageous to use the 80% because you would personally be making up the difference using the 67% which essentially accounts for the empty rooms).  

Please ask if you have any other questions!