rental income

[horneater]

I own a single family home and rent out an apartment over the garage to my special needs son.  I also have a live in partner that pays me monthly rent.  If I deduct my mortgage interest and real estate taxes from one of the rental incomes it shows I pay zero taxes total but if I deduct the mortgage interest and real estate taxes in the space under my regular home expenses it shows I owe a total of $3000 taxes.  Where should I deduct my mortgage interest and taxes from?

[ColeenD3 · Accepted solution]

Your partner is probably sharing living expenses as opposed to having a landlord/tenant relationship.

You need to prorate the square footage of the apartment with the rest of the house. You would divide the mortgage interest and property taxes in that proration on both Schedule A for your personal portion and Schedule E for the rental portion.

If the apartment is not a true rental situation, meaning you do not charge the full rental value of the apartment to your son, then you have a not-for-profit rental. That is treated differently.

Not Rented for Profit

If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

Where to report.

Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8. If you itemize your deductions, include your mortgage interest and mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A.

[horneater]

How would I show that my partner is paying rent?

[AmyC]

Usually a partner is living in the same space as you and does not have a specific space rented exclusively for them. For example: Your son has a specific area that you do not use. He is renting out space exclusively for his use. Sch E for rental income.

Is your partner renting an area exclusive to them? Normally, it is a bedroom, maybe a bathroom, but a partner does not seem to apply here. In addition, it must be fair market value for what others would charge in the same situation. If it is below fair market value, then no rental expenses are claimed. This would be pure income. Follow these steps:

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description rental income
9. Amount, enter your amount
10. continue

See Publication 527, Residential Rental Property (Including Rental of Vacation Homes)