Rented out two rooms different lengths of time

[Ember6551]

I rented to two individuals. How do I report the different room occupancy periods, one was 9 months and one was 12 months. I’m also confused as how to figure expenses (utilities, mortgage interest, taxes) and depreciation.

 I read that I have to depreciate my house but is that true even if this is not a profit-making venture?  

[DianeW777]

It depends. See the 'not for profit' information below about depreciation. The square feet of space rented divided by the total square feet of the property is the allowed percentage of all expenses paid for the entire property. This would include utilities, insurance, taxes as example. 

Note: For a period less than one year, you would divide the total by 12 then multiply by the number of months of rental.  The percentage will be different during periods where two people are renting a room and when only one person is renting a room (square feet of two rooms or one room depending on how many tenants in a single period/month).

Be sure to answer the questions when you start the rental entries so that TurboTax knows to limit the expenses.

If you own the property and it is not rented for profit here are the rules. 

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

If you never depreciated the property due to the intent of not for profit during any and all rents, then there is nothing to recapture when you sell your home.

• IRS Publication 527

[Ember6551]

Thank you so much for your assistance. How do I know if IRS sees it as "not for profit"?  Not renting at "fair market value"?  Does the total of expenses have to equal or exceed the rental money taken in to be "not for profit?"? (And is the depreciation formula part of those "not for profit" expenses?)

I also understood from some other posts that some expenses could be divided by the number of occupants (2 or 3) in any given month rather than as a percentage of the total floor space their rooms occupy. For instance water usage, electricity/gas, internet, security system). Is that dependent on status of "for profit"? Your thoughts please? Thank you in advance.

[AnnetteB6]

The fair market rental value in your area for a similar rented space versus the rent that you charge is what determines whether you have a profit motive when you rent your rooms.  If you are charging a much lesser rate than others in your area with a similar space, then you are not renting for profit.  

This means that any and all of your expenses are limited to the amount of rent that you collect.  The expenses compared to the rent you charge are not a factor in determining whether you are renting for profit.

When it comes to dividing expenses, the conventional method is to use square feet of the space rented versus the square feet of the whole house, but that is not a rule that must be followed.  You could use the number of occupants to divide the expenses if you choose.  You just need to be consistent with the method that you use.  

@Ember6551