Personal Use of Rental Property
Personal Use of Rental Property — Roommates and Boarders
Renting Part of Property
If a portion of the property is rented out, and a portion is used for personal purposes, any reasonable method of allocating expenses between personal and rental use is allowed. For example, dividing the cost of utilities by the number of people living in the home, or dividing expenses based on square footage of use, are reasonable methods.
Example:
Phil owns and lives in a personal residence that has 1,800 square feet of floor space. Phil takes in a boarder and rents out a room that is 12 × 15 feet, or 180 square feet. Phil can allocate 10% of the home’s expenses to the rental. The total utility bills for the year are $2,700. Phil can deduct $270 ($2,700 × 10%) from rental income.
Phone Expense
The cost of the first phone line into a home that is used for both personal and rental purposes is not deductible.
Direct Rental Expenses
A full deduction is allowed for expenses that belong only to the rental part of the property. Examples of fully-deductible rental expenses include painting a room that is rented out, additional liability insurance attributable to the rental, and the cost of a second phone line that is strictly for the tenant.
There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us if you have questions about the tax effects of a transaction or event.