Renting out rooms in a home I live in?

[Ripnlips1204]

I purchased a house at the end of 2021 that I planned to have roommates in.  It was just me in there until April and from that point on, I had 1-3 roommates each month paying rent.  I paid all utilities.  I have a formula to add up the utilities and divide them by the number of people so I think I am good there. 

How do I deal with the mortgage interest and property taxes?  Last year I had no renters and just did them as a homeowner as my interest and taxes are substantial.  

[BrittanyS]

You must split any expenses – mortgage interest, mortgage insurance premiums, and real estate taxes – between the rented portion of your home and the unrented part. You can also deduct expenses that are usually not deductible, like electricity and qualified home improvement projects.

To enter in TurboTax, follow these steps:

1. Under the rental property section, your Property Profile indicates that you rented out part of your home. 
2. On the page, Let Us Calculate Your Expense Deductions for You, a yes answer will allow you to enter the entire mortgage expense, and TurboTax will do the math for you based on the rental % of your home. 
3. If you choose this method, you wouldn't enter the deductible personal portion again. TurboTax would transfer the personal portion to Schedule A.

@Ripnlips1204 

[Ripnlips1204]

So in rough square foot the two bedrooms and bathroom are around 20% of the total square feet.  So I put that in. 

On the utilities front I want to divide it by the number of roommates as the amounts go up and down with a 3rd or 4th person.  Can I report the expenses that way, as Turbotax is only giving me 20% of the number when I put it in.  

[GeorgeM777]

No, the percentage--in your case 20%--remains the same.  While the utilities will fluctuate based on the number of renters, rate charged per kilowatt hour, time of year, etc., the percentage of your home which serves as a rental needs to remain the same.  Additionally, it is possible that for some months you will not have renters; however, if the property--or rooms in this case--are available for rent, then you can still deduct the expenses associated with those vacant rooms, i.e., depreciation, utilities, property taxes, mortgage interest, etc., even though there are no renters living in the vacant rooms.  You stop deducting expenses when you take the rooms out of service.  In other words, you are no longer offering them for rent.  

Now, if want to charge your roommates separately for the utilities they use, you can do that.  Adding the utility costs to the roommates rent just gets added to your gross rent received when you complete Schedule E for your rental.  However, as noted herein, when allocating expenses to your rental it is all based on the percentage of your home that is used as a rental property.  

@Ripnlips1204 

[Ripnlips1204]

Perfect, one last question.   I live in the house and started renting out the rooms in April of 2022.  When I put that date of service in, it calculated depreciation and I now have a much larger refund, and a negative figure on the income of the rental.  

I guess I'm not sure if that is right as I didn't think I could offset more than the income I received in rental as I live there as well. 

Thanks for all the helpful replies.  

[AnnetteB6 · Accepted solution]

As long as the depreciation is using the same percentage of business use (20% in your case), then it is only depreciating the rental portion of your home.  Often when depreciation is taken into account, rental activities become an overall loss instead of a gain.

The fact that you also live in the house does not affect your ability to claim the loss if other qualifications have been met to claim the loss.  

@Ripnlips1204 

[Ripnlips1204]

Spoiler

In Turbotax it asks about the rental asset, when I acquired it, when I first started renting it etc.  I've rented it 75% of the year, which I included but I don't see the way to put in the 20% figure anywhere.  

Thoughts?

[AnnetteB6]

You need to check the box to indicate that you are renting part of your home in order to indicate that 20% is being considered a rental property.  

If you are using a CD/downloaded version of TurboTax, the check-box is in the Property Profile section.

If you are using TurboTax Online, it is in the Rental Property Info > Situations section.

You will be asked if you want TurboTax to do the math or if you will do the math.  Since you only rented part of your home for part of the year, you should do the math and enter the amounts that only pertain to the rental portion of your home.  TurboTax will not prorate both the time it was rented and the percent that was rented.

@Ripnlips1204 

[Ripnlips1204]

I think I got it figured out,  take the price of the house multiplied by the 20% rate and then use that as the number TurboTax uses for the depreciation calculation.  Correct? 

[Ripnlips1204]

So last question.  This is a 3 bedroom house, I have a master with its own bathroom.  The renters have access to the entirety of the house except for my bedroom.  They have shelves in the laundry room, their own 2 bathrooms I don't use and shelves in the pantry and fridge and a portion of the garage.  I provide all cookware and dishes, cleaning products and detergents.  

The 20-25% for their bedrooms/bathrooms seems low given their use of the common areas and dining rooms.  Am I doing that right? 

[Ripnlips1204]

Can someone please help with my question above?  

Thanks, 

Rip'N'Lips 

[PattiF]

Yes, you are doing that right. Only the exclusively used areas are considered rental areas. The common area is available to all and is not a factor in the allocation of expenses.

Please see Renting Part of Property in IRS Publication 527 for more information.

@Ripnlips1204