Renting out rooms to my home

[xboriquax955]

I own my 3 BR home and have started renting out my 2 other rooms at a pretty low rate (rent is 600, local area 1 BR appts go for 950+). Do I have to report this income? If so, can I claim a portion of the house as rental property and a portion of the utilities, and also claim repairs done to the house due to damages?

Broken down to this;

Rent for each 600

Utilities split 3 ways

All residents have free access to all portions of the house 

I pay full for HOA (do not charge renters)

Mortgage is 1430/month (including H/O insurance  and taxes)

Followup question; where would I report this come tax time next year? And what should I be keeping to document for that time?

[Critter]

ok... sounds like you simply have a roommate situation especially if you are charging less than fair market value ... if so there is nothing to report or deduct. 

[Carl]

I own my 3 BR home and have started renting out my 2 other rooms at a pretty low rate (rent is 600, local area 1 BR appts go for 950+).

Doesn't sound like a low rate to me. If I can rent a 1BR apartment for $900-1000 a month, and only rent one bedroom in your house for $600 a month, that sounds like FMRV hands down. I am assuming you are renting each room for $600 apiece. So there's no question in my mind that your intent is to make a profit. If so, then you need to report the rental income.

You'll do so in the Rental & Royalty Income (SCH E) section of the program. If you work it through and read the small print, it's a piece of cake. When you have questions, please post back and ask. The small print means everything. There is a difference between "select the one that applies" and "select all that apply". So attention to detail is important.

[Hal_Al]

Simple answer: no.  You do not have a rental situation and do not need to report it on your tax return.

But taxes aren't always simple. See fuller explanation below.

Roommate  rental

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position stronger.

Here’s what you may be required to do:

Report the income (enter at Rents & Royalties/Income & expenses from Rental Properties); and then deduct the expenses on schedule E. If the room mate has full run of the house, and there's just the 2 of you, then half  (2/3 in your case) your expenses are deductible (mortgage interest, property taxes, insurance, utilities, repairs, and depreciation [if needed}). Your net income will usually be less than zero.

What you are NOT allowed to do, because it is your own home (you have "personal use") is claim a loss from this activity, to offset other income. Because of the "personal use rule", your deductions are limited to your income. Net effect ZERO.

It is possible for you to gain a positive tax effect from this activity; If enough of your schedule A deductions (mortgage interest &  property tax) are shifted to Schedule E, and your standard deduction becomes bigger than your itemized deductions, you will have effectively saved on taxes.

If you have no mortgage, then there could well be profit involved, which you may have to offset with depreciation that could lead to "recapture" in the future when the property is sold.

https://www.irs.gov/publications/p527/ch04.html#en_US_2014_publink1000219159

TurboTax (TT) does not handle this properly. TT will not limit your deductions to your income. You have to do that manually. TT wants you to enter this as a “not for profit rental”, which does not use Schedule E and puts your expenses on Schedule A (itemized deduction). I'm of the opinion that's not the proper way.