Rental Property

[cherylendres7]

My husband and I bought a house with our daughter on April 26, 2019.  All 3 of us are on the "title" and mortgage.  Our daughter lives in the house.  She rents out 2 of the 4 bedrooms.  It was available for rent as of May 1, 2019.  My husband and I put down 20% of the purchase price.  Then in October 2019, there was major damage that required the kitchen to be totally remodeled, which my husband and I paid for the remodel.  Our daughter pays the entire mortgage payment and all utilities and any other costs to the house.  My question is, can my husband and I take the depreciation on the 20% (of building value) we put down on the house and the depreciation on the kitchen remodel costs on Schedule E for rental property?  Then our daughter would file Schedule E showing the rental income, 50% of expenses (2 of 4 bedrooms) and depreciation on the remaining 80% (of building value)? 

[DaveF1006 · Accepted solution]

Yes but this could get complicated. first you would need to separate out the rental portion of the house and then divide your ownership portion of the income and expenses. in your case, it would be 1/5 (20%) of the rental portion of the residence. It doesn't matter who receives the income because you are all partners in this property and you share the income and expenses according to your partnership interests.  In this case, 80-20.

If you wish to keep it simple, let your daughter claim the income and expenses. If there is a tax benefit for her, have her take you out to dinner or show other forms of gratitude to you.