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SouthernRentals
Level 1

Depreciating property when occupied by one of multiple Tenants in Common

If two people own a house as TiC, and one of the two lives in the house, can the non occupant treat his half of the ownership as a rental to the occupant for purposes of RE rental depreciation and interest deduction?

Both people in this scenario have 50% ownership via TiC title.

4 Replies
martinmarks
Level 10

Depreciating property when occupied by one of multiple Tenants in Common

can the non occupant treat his half of the ownership as a rental

You and the occupant can agree to pretty much anything BUT the occupant doesn't have to pay you a dime for rent if that occupant doesn't want to......you each own an undivided one half interest in the house and you each have an equal right to occupy the house. 

SouthernRentals
Level 1

Depreciating property when occupied by one of multiple Tenants in Common

That part makes sense.  He occupies and pays the mortgage, insurance, etc.  Precedents show I'm able to deduct mortgage interest and insurance in proportion to the amount I pay when we rent to third party, but was unclear as to impact of "renting" to one of the TiC's. Thanks for commenting!

Carl
Level 15

Depreciating property when occupied by one of multiple Tenants in Common

Depreciation on real estate is only applicable when that real estate is utilized for the production of income. So if you are paying rent to the other TIC "AND" the recipient of that rent is reporting it as income on their tax return, then the recipient of that rent can depreciate the value of their portion of ownership that you are paying them rent for.

But typically, when you have a situation such as yours there is no formal rental contract involved and each TIC just pays their share of the expenses (mortgage, insurance, property taxes, etc.) So there's really nothing being rented per-se.

If you have two TICs and each has 50% ownership with only one of the TICs living in the property as their primary residence (or 2nd home for that matter), if each of you is paying one half of the expenses then there's no rental activity taking place. But if you are paying your half of the mortgage, property taxes and insurance, and then paying an additional amount to the non-resident TIC for the use of "their half" of the property, that additional amount "could" be considered rent which the recipient would report as income on their own tax return using SCH E.

 

Hal_Al
Level 15

Depreciating property when occupied by one of multiple Tenants in Common

Another issue to consider: If you claim depreciation on the property, that depreciation will have to be "recaptured" (pay tax on it) when you sell the property in the future. 

 

I agree with the other comments; it's unlikely that you can claim this situation as rental activity.   You essentially have a 2nd home. The mortgage interest and real estate tax paid are deductible, if you itemize deductions. 

 

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