Are shared living expense reimbursements taxable?

[thomasjsimon]

 My girlfriend moved into my house with me. We are going to split expenses down the middle. All bills/utilities are in my name, so she's going to be giving me upwards of $10K/yr. Is that taxable income? Is there some smart way to organize this? I've done a fair amount of googling and I don't see a definitive answer, some people say it's taxable if it's fair market value rent, but then you can depreciate part of the home (reducing cost basis?), others say it's something more like a reimbursement.

[Hal_Al]

You are NOT REQUIRED, by the IRS, to treat that as reportable income. It is only roommates sharing expenses.

The alternate question is MAY you treat it as income. The answer is not as clear, but, in my opinion, is still NO. The only income types it could be is either rent or boarding house income. From how you described the financial arrangement and the personal nature of the relationship, it is pretty clearly  neither.

Even if you were to try to call it rent, be advised that you cannot claim a loss from this activity, to offset other income. Because of the "personal use rule"  (because it is your  home, you have "personal use"), your deductions are limited to your income. Net effect ZERO.

[DoninGA]

If you are not renting a portion of the home to your girlfriend, then you are room-mates sharing expenses for the home.  The expenses received from her are not income.  If you are not renting a portion of the home, then there is no depreciation.

[SweetieJean]

Likewise, she cannot deduct the $10k.

[thomasjsimon]

I guess I should have been more clear. I am paying a mortgage (+taxes & insurance etc) and she is reimbursing me for 50% of that payment, as well as 50% of all utility bills etc. She is not giving me any more than what is on the various statements, however.

[thomasjsimon]

I.e. does a reimbursement for the mortgage payment count as rent? That's what I'd be trying to cover were I renting out the house, (plus a maintenance allowance and a profit margin, of course).

[DoninGA]

If you want to consider the amount received as rent, then it would be a not-for-profit rental which is covered in IRS Publication 523 on page 16 - <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p527.pdf#page=16">https://www.irs.gov/pub/irs-pdf/p527.pdf#page=16</...>

"If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year."

Otherwise any amounts received from your room-mate is shared expenses and not reported on your federal tax return.
You can still deduct the mortgage interest and property taxes as itemized deductions on Schedule A of the tax return as the owner of the property.

[Gary39]

Regarding the last comment in the previous reply "You can still deduct the mortgage interest and property taxes as itemized deductions on Schedule A of the tax return as the owner of the property".  My question is how much interest and tax can the homeowner deduct on their Schedule A -- i.e. the entire amount reported by the mortgage company, or just the portion that the roommate did not reimburse (i.e. 1/2 of the total amount).  I presume the later?

[DoninGA]

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@Gary39 wrote:

Regarding the last comment in the previous reply "You can still deduct the mortgage interest and property taxes as itemized deductions on Schedule A of the tax return as the owner of the property".  My question is how much interest and tax can the homeowner deduct on their Schedule A -- i.e. the entire amount reported by the mortgage company, or just the portion that the roommate did not reimburse (i.e. 1/2 of the total amount).  I presume the later?

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The entire amount.  How you received the funds to pay the mortgage interest is not relevant since you are the owner of the property.

[ThomasM125]

You can only deduct the portion that you pay, which is 1/2 in this case. You could treat the reimbursement as rent income, which would allow you to deduct the full amount of the mortgage interest, partially as rental expenses and partially as itemized deduction, but then you would need to report the rent income, so it would probably give you the same or similar deduction.

[Gary39]

Thanks for the feedback, but are you sure?  I see that Intuit's Employee Tax Expert says "only the part that you pay, i.e 1/2 in my case".  I like your answer better, but I fear that his may be correct.  Do you know of any IRS guidance on this subject?  Thanks for the help!

[DoninGA]

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@Gary39 wrote:

Thanks for the feedback, but are you sure?  I see that Intuit's Employee Tax Expert says "only the part that you pay, i.e 1/2 in my case".  I like your answer better, but I fear that his may be correct.  Do you know of any IRS guidance on this subject?  Thanks for the help!

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You should be entering the amount received for the rent as income on your tax return.  Then you can deduct the full amount of the mortgage interest paid as an itemized deduction on Schedule A.

[Gary39]

Thanks.  I am asking on my sons behalf (he is the homeowner with the roommate).  It would not be advantageous  for him to treat this as a rental and depreciate a part of the property, because he is in a low income tax bracket.  Hence the tax on recapture (when he sells) would be greater than his current tax benefit from depreciation (plus it could expose him to capital gains on a future sale, if he doesn't re-qualify the entire property as personal use/residence for 2 years prior to sale).

[DoninGA]

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@Gary39 wrote:

Thanks.  I am asking on my sons behalf (he is the homeowner with the roommate).  It would not be advantageous  for him to treat this as a rental and depreciate a part of the property, because he is in a low income tax bracket.  Hence the tax on recapture (when he sells) would be greater than his current tax benefit from depreciation (plus it could expose him to capital gains on a future sale, if he doesn't re-qualify the entire property as personal use/residence for 2 years prior to sale).

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Is this a true rental situation with a rental agreement or is this just roommates sharing expenses?  If there is no rental agreement then it is just roommates sharing expenses and nothing concerning the funds received from the roommate is entered on a tax return.

[Auser2]

What if I’m self-employed, I want to write utilities off for myself, I reimburse the person I’m living with for the expense- do they then have to count it as income? Would it be different if I paid the bills directly?