Gardening in partial rental property

[D7knight2]

I rent out two bedrooms in my primary residence. I am filling out the rental property section in turbo tax desktop
In 2022 
1. I paid gardening 80 / month for the property. Note: I rent out two of the bedrooms and the backyard and frontyard are common space to the tenants.
2. repaired a backyard grass patch that was destroyed by gophers
3. Redid mulch due to wind blowing old mulch away (count as a repair?)
4. hired someone to repair water heater

Is any of 1-4 deductible expense for a repair for my rentals which are two bedrooms in the primary residence? How do I enter in the expense? Property rented full year. Would it be expense amount * percent of rental space in primary residence 

[taxlady28]

Create a fraction where the numerator is the total square footage of the two rented bedrooms and the denomination is the total square footage of the home.  Multiply that fraction by  the total of 80 x 12.

[NCperson]

You are renting out the two bedrooms and the two bed rooms only; you are not renting out the common areas.  Therefore, expenses for the common areas are not tax deductible.  All 4 items are common.

[Hal_Al · Accepted solution]

It looks like you have two conflicting opinions there; one says prorate the expenses based on square footage and the other says, it's not deductible because the yard is not rented out.

I'm going to give you a 3rd and 4th opinion (3. you prorate by number of residents and 4. you don't have a rental, you only have roommates sharing expenses).

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position stronger.

Here’s what you may be required to do:

Report the income (enter at Rents & Royalties/Income & expenses from Rental Properties); and then deduct the expenses on schedule E. If the roommates has full run of the house and yard, and there's just the 3 of you, then two thirds of your expenses are deductible (mortgage interest, property taxes, insurance, utilities, repairs, and depreciation [if needed}). Your net income will usually be less than zero.

What you are NOT allowed to do, because it is your own home (you have "personal use") is claim a loss from this activity, to offset other income. Because of the "personal use rule", your deductions are limited to your income. Net effect ZERO.

It is possible for you to gain a positive tax effect from this activity; If enough of your schedule A deductions (mortgage interest &  property tax) are shifted to Schedule E, and your standard deduction becomes bigger than your itemized deductions, you will have effectively saved on taxes.

If you have no mortgage (and mortgage interest to deduct), then there could well be profit involved, which you may have to offset with depreciation that could lead to "recapture" in the future when the property is sold.

[D7knight2]

Thanks for the follow up, Is it deductible though in my case with the partially rented house? I know if you rent out your entire house it is but just wanted to make sure I can do it for renting out the 2 bedrooms 

[D7knight2]

thanks for the clarification! Even the water heater repair is not deductible?  Is cleaning of one of the rented bedrooms deductible?

[Carl]

Disclaimer: Even though I have my fair share of experience, I am not a tax professional by any stretch of the imagination.

To a degree, gardening expenses have nothing to do with the square footage of space that is exclusive to the renter.

The percentage of your cost basis that is depreciated is based on the square footage of floor space that is "exclusive to the renter". Therefore, common areas shared with the owner are not included. For example, if the house has only one kitchen and it is used by the tenants and the owner, then the floor space of that kitchen is not exclusive to the renter and is therefore not included in the percentage of floor space that "is" exclusive to the renter.

Generally, if 10% of your floor space is exclusive to the renter, then you would include 10% of the property value in your total cost basis also. However, since land is not a depreciable asset, the land value really has no effect on the amount of depreciation that is allowed. The land value comes into play when you sell the property,since an equal percentage of the land would be treated as business property.

So, lets say you pay a third party to cut your grass weekly and you pay them $50 per cut. If 10% of your floor space is exclusive to the renter, then you may be able to claim 10% of your lawn cutting fee as a rental expense; which would come out to $5 per cut with my numbers. But I still question that.

Now let's play devil's advocate, as from an IRS perspective there is one thing I would question with this. Is 10% of your land exclusive to the renter? Can you prove it? Probably not. Based on that from an IRS agent perspective, they would probably disallow the deduction. At least, that's what I would expect.

There are three "golden rules" to keep in mind when dealing with an IRS audit.

1) You are guilty until proven innocent.

2) The burden of proof is on the accused (that would be you!) and not the accuser.

3) If it's not in writing, then it did not occur.