We have a unique situation and will need some advice on filing taxes soon. We currently rent our primary residence (awaiting our last child to finish high school)
I'm assuming that you "PAY" rent for your primary residence. Therefore, you do not own your primary residence. This has nothing to do with your query, actually.
and this year (June 2020) purchased a 'second home' about 2 hours away so that our college student could live more affordably and we could have an investment.
Either you have purchased a 2nd home for personal use, an investment property, or in uncommon (but not rare) situations you have a "mixed use" investment property.
our mortgage is $1305/month and we charge her two roommates $500/month.
So based on 3 people living in the house and only two of them pay rent, it would appear to me that you "are" renting at FMRV (Fair Market Rental Value). But since your college student lives there rent free, that means the property is not 100% business use. It's 66% business use.
So we are not making any money on this, but it has reduced our college expenses.
That may or may not be true. Remember, the principle part of your mortgage payment is not a deductible expense of any type. It's taxable income. However, having recently purchased the property I would expect the principle part of each payment to be extremely low - like less than 10% of the total payment. There are also other factors not discussed here (such as depreciation) that delay you paying taxes on the taxable income until later down the road. Depreciation is an example of one common "delay" tactic.
We do cover about $350 /month for her part of rent through the school year (9 months),
Actually, you don't cover anything for anyone else. You are "in fact" providing support to your college student and in your case, you can actually put a dollar amount of $350/mo on that support you provide.
So wondering if we will be able to claim mortgage exemptions and such as this is a second home (but the only home we own) and we aren't making any income on it. Thanks in advance!
The property is producing income. The taxability of that income just flat out doesn't matter. It's still income that has to be reported. With the property being 66% business use that means that 66% of all expenses are a deductible rental expense. So on the SCH E you can claim 66% of your property taxes, 66% of the mortgage interest, 66% of the property insurance and 66% of all other expenses.
The other 33% of property taxes and mortgage interest are a SCH A itemized deduction subject to the SALT limits. The 33% of other expenses are not deductible at all.
and she is responsible for the $500/month for the summer months (3 months).
That adds a new wrinkle that can be handled any one of several ways. Technically, for the summer months that makes the property 100% business use and the fact that one of your renters is a family member *does* matter.
Me personally, while I may or may not report the rental income from my child for those three summer months, I'd keep it at 66% business use the whole year. Besides, whatever path I follow, my student/child will still qualify as my dependent on my tax return anyway. That means my student/dependent is just flat out not legally eligible for the stimulus payment, no matter what we do.
