depreciation with rented bedroom and office

[luckyaces09]

Hello,

I currently rent out one bedroom of my condo and use the remainder as a home office. The total sqft is 900. In terms of depreciation, am I correct to depreciate half of the unit under the straight line 27.5 year schedule and the other half under the 39 year schedule? Will I run into any issues as this is my primary residence, and I am technically depreciating 100% of the unit even though the squarefootage is so small?

[Carl]

I currently rent out one bedroom of my condo and use the remainder as a home office.

Home office for what? I ask, because you are not allowed a home office on SCH E for ***RESIDENTIAL*** rental real estate.

The rules for depreciation are covered in IRS Pub 946. Somewhere in there it covers what I guess you would called "mixed use" and if conditions are met, it would all be depreciated over 27.5 years.

See IRS Publication 946 page 33, section called "Office in the home" at https://www.irs.gov/pub/irs-pdf/p946.pdf

[rjs]

Please clarify how many square feet are allocated to each of the three uses that you mentioned: rented out, home office, and primary residence.

If "the remainder," i.e. all but the rented-out room, is a home office, it can't also be your primary residence. To deduct expenses for a home office, the office area has to be used exclusively for business.

Also, how did you arrive at a 50% split? Is the rented-out room half of the total area of the condo?

[luckyaces09]

The unit is small- essentially a kitchen, and 2 bedrooms with bathrooms. I am a real estate agent (independent contractor) with an LLC that files as an S Corp. I have been using my bedroom as office space. If the area needs to be used exclusively for business, because if the size of the space, can I reasonably say that I rent 50% to my tenant (in fairness he probably has access to 70% of the total space) and 40% to my business? If that is the case, how would the deductions work?

[Carl]

The percentage of rented space is that which is "exclusive to the renter". So if it's 70%, then that's what it is.

Overall, assuming you meet the standards as indicated in pub 946, all of it would be depreciated over 27.5 years anyway.

[Critter-3]

@luckyaces09 

Since you must be a W-2 employee for your S-Corp and an employee cannot deduct office in home expenses until 2026 the depreciation of the "home office" is a mute subject.  

Since I assume the corporation doesn't own the condo you can technically "rent" the office space to the corp for a fee which you would also report as rental income on the Sch E.  

I highly recommend you seek local professional guidance on this matter before you do anything ... you need to be educated on your options.