I own a property with a large home & a separate garage apartment farther back on the 2-acre property. I live in the apartment & lease out the house. How is this handled?

[linda-f-oliver]

The home is on the front of the property with the apartment on the back.

[KrisD15]

You will report this as rental income which will generate a Schedule E with your tax return. The information from Schedule E flows to your 1040.

You will need to value the rented portion as a percentage of the total homestead. 

Every year the rental portion of the property will depreciate. In a way this is good because it is an amount that is subtracted from the rental income. The downside is that you will need to "recapture the depreciation" and pay tax on that amount when you sell or change the property back to personal use. You do not have the option to not claim it thinking that way you don't have to pay it back. 

Expenses for just that home are expensed against the rent. 

Shared expenses, such as property taxes, are expensed proportionately. 

More about rentals from TurboTax

[linda-f-oliver]

KrisD15

Thank you so much for your response.