topic I live in my personal residence and rent out a couple rooms. Is categorized as a Rental Property now? in Investors & landlords

I live in my personal residence and rent out a couple rooms. Is categorized as a Rental Property now?

srserie — Sat, 01 Jun 2019 00:28:58 GMT

No. It's still your personal residence. Rephrasing your q...

Hal_Al — Sat, 01 Jun 2019 00:29:01 GMT

No. It's still your personal residence.

Rephrasing your question, you want to know if you have rental income to report. Probably not.

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 roommates 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); then deduct the expenses. TurboTax will do this on schedule E. If the room mate has full run of the house, and there's just the 2 of you, then half 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.

Thanks! So, if I do not claim the rent as income can I d...

srserie — Sat, 01 Jun 2019 00:29:01 GMT

Thanks! So, if I do not claim the rent as income can I deduct the two rooms as part of my business?

What business? Renting rooms is not a "business". Rental...

Hal_Al — Sat, 01 Jun 2019 00:29:03 GMT

What business? Renting rooms is not a "business". Rental activity is a separate income category from business. As noted above, you can only "deduct the two rooms" up to the amount of income you take in. if you report no income, you get no deductions. So, no there is no net deduction from renting rooms.

Re: No. It's still your personal residence. Rephrasing your q...

isamom1982 — Tue, 22 Mar 2022 18:29:56 GMT

@Hal_Al does the rule of "you can not deduct any losses made on renting a room in your personal residence" also apply if that room is NEVER used for personal use. It is attached to my primary residence, but I never use it. Either way, how does Turbotax (Home & Business desktop) capture the distinction of a room rental in a primary residence and make sure that possible losses are NOT lowering other passive gains on the same Schedule E, for example but rather carries these losses forward just for that column that is about the room rental in the residence.

When I look at the Schedule E that has 'standard' rentals in separate building in column A nd B and the one room I rent out in my primary residence in Column C, it seems to use a loss on the room (Column C) and reduce the overall gain generated by Column A+B in the "total rental income". And that, even though I think I correctly entered in the step-by-sep that this is a "room in my private residence".

Re: No. It's still your personal residence. Rephrasing your q...

ThomasM125 — Tue, 22 Mar 2022 19:02:58 GMT

I think what you are saying is that you have a loss on the "C" rental and you want to know if it can reduce the gains on other rental properties that you own. It can, as the gain or loss on all of your rentals are combined to determine the total gain or loss allowed on your tax return.

If a loss on property "C" is not allowed due to personal use of the property, you would indicate that in TurboTax when you enter the rental information for that property, and then a loss would not be allowed or reported for the property in the current year and there would be no loss available to be applied to income from other rental properties and there would be no carryover loss to future periods.

@isamom1982

Re: No. It's still your personal residence. Rephrasing your q...

isamom1982 — Tue, 22 Mar 2022 22:16:58 GMT

@ThomasM125 That all makes sense to me. The remnant question then is: Is the Rental "C" considered "personal use" if it is a room in the attic of your home (primary residence) that stays UNUSED/EMPTY - unless when rented out to a non-family member? Or is it correct and safe to classify this just like every other rental we have - except that we pro-rate all relevant entire-house costs and a share of depreciation (based on sqft share)?

I read an article in the CPA Journal (link: https://www.cpajournal.com/2019/11/11/tax-treatment-of-home-sharing-activities/ - see "special situation in the middle) that suggested to me that renting a room in your residence is a "special situation" that ALWAYS has to be treated similar to a home office: No losses are allowed to be applied anywhere than against the rental "C" itself. Not against other passive income (ie. A and B) nor against anything else, EVEN tough these C rental incomes are considered "non-passive" income. But maybe I am gettig all of that completly wrong, like others on TT discussion strings I have seen on the subject.

Re: No. It's still your personal residence. Rephrasing your q...

ThomasM125 — Tue, 22 Mar 2022 22:56:08 GMT

Based on the article, regulation 280A(c)(5) would deny the reporting of a loss on the room rental since it is in your home. After reading the article I agree with this, especially since you don't rent it for the whole year, so personal use of the room would be applicable during the time it was not rented. Furthermore, If you have personal use of the room for more then 14 days or 10% of the time it is rented (whichever is more), then you can't deduct a loss on the rental as proposed regulation 1.280A-3(c)(2) assumes personal use for any time the room in your house is not rented.

So, it seems you should not be reporting a loss on the "C" rental.

@isamom1982

Re: No. It's still your personal residence. Rephrasing your q...

kkjones — Sat, 15 Feb 2025 15:06:39 GMT

followup question:

I, too, have a homeshare situation and have entered my rental income and expenses. This adds up to a LOSS, which I understand I can't take, but I cannot find a way to manually adjust the schedule to 0.

How do I make Turbo behave in this case?

Thank you.

Re: No. It's still your personal residence. Rephrasing your q...

DianeW777 — Sat, 15 Feb 2025 15:30:06 GMT

It depends. As indicated in previous posts 'you would indicate that in TurboTax when you enter the rental information for that property, and then a loss would not be allowed or reported for the property in the current year and there would be no loss available'. You may want to go back to the Property Profile to correct your answers to the questions.

TurboTax Online/Mobile: Search > type rentals > click the link Where do I enter income and expenses from a rental property?
Click rentals > Edit beside your rental > Edit Rental Property Info > Edit Situations
TurboTax Desktop: Search > type rentals > Click the Jump to... link > Edit beside your rental > Update General Property Information
Select Vacation or short term .....

The other option is you can choose to reduce expenses to the amount of rental income to arrive at a zero profit/loss. The above will allow TurboTax to limit it for you.

@kkjones

Re: No. It's still your personal residence. Rephrasing your q...

kkjones — Sat, 15 Feb 2025 15:33:31 GMT

I just discovered I can override the loss on the form and set it to zero. Is there any reason that isn't kosher?

Re: No. It's still your personal residence. Rephrasing your q...

DianeW777 — Sat, 15 Feb 2025 15:42:28 GMT

It depends. As long as the zero is what gets filed you are good, although e-file may be unallowed. Overrides can eliminate the TurboTax guarantee. See the article posted below for your convenience.

It's important to know that answering the questions correctly will allow TurboTax to limit the loss in the future. And you should make a note for yourself in your tax file the reasons you did the manual override.

How do I override (replace) an amount calculated by TurboTax?

@kkjones

Re: No. It's still your personal residence. Rephrasing your q...

kkjones — Sat, 15 Feb 2025 17:45:22 GMT

Thank you. The first suggestion does nothing to modify my loss, and I can't pass the check so can't e-file.

I guess I'm left with fudging the numbers? Seems sketchy!