You are not my tax adviser, but do I need one? (renting out a room)
February 3, 2016 5:46 PM   Subscribe

In June, I started renting out a bedroom in my condo. I know I can deduct a percentage of some household expenses, but I want to make sure I 'm doing it right. I've been doing my taxes online with FreeTaxUSA for years. I'm really happy with them, but I've always just taken the standard deduction, and I'm wondering if it would be worth hiring someone this year (and then maybe going back to online next year). More inside.

I keep reading that the percentage I can deduct of some household expenses is based on the size of the room in relation to the house. My renter has exclusive use of one bedroom and one bathroom, but she also has complete access to the kitchen, living room, and deck. From the IRS info online, it looks like that access doesn't count for anything.
Also, if you have done this in the past, are there any possible deductions that might be easy to overlook? Assume I've looked at the IRS form, so I know about utilities, cleaning expenses, and repairs. Another issue is that the deductions for depreciation totally confuse me, which is one reason I'm thinking maybe I should hire an accountant.
posted by FencingGal to Law & Government (8 answers total) 1 user marked this as a favorite
 
Best answer: You have a can of worms, go to a good accountant and benefit from that person's wisdom.

Are you paying mortgage interest? That's deductible. The rent you receive is taxable income. Does your renter have their own renters insurance? If not, you are hugely exposed.

You need someone to advise you on all of these issues.
posted by Ruthless Bunny at 6:11 PM on February 3, 2016 [1 favorite]


Response by poster: I should have clarified - I know the rent is taxable income. I just know there are deductions available as well.
posted by FencingGal at 6:16 PM on February 3, 2016


I think it's worth it. I did this (different country, different issue) for a couple of years, and it was easy and worth it.
posted by kjs4 at 6:35 PM on February 3, 2016


Best answer: You probably need an accountant but I rent an apartment above my garage that is considered part of my house so I can tell you some general things. The first is, no one ever got rich on deductions. The second is that your "expenses" that are deductible will just be for the rented portion of the house. You can calculate this in a reasonable way but the most common is the number of rooms in the house or its square footage. To use square footage as an example, let's say your house is 2,000 sq ft and the tenant has exclusive use of 500 sq ft. The tenant has exclusive use of 25% of the house so you could deduct 25% of certain expenses for tax purposes. For example, if you paid $2,000 in power over the course of the year, you could deduct $500 of that as a business expense. Same for your HOA fees, garbage fees, et cetera. Residential mortgage interest is deductible anyway, so I never claim it as a business expense from the rental. I use an accountant, btw.

The second notable deduction would be depreciation of the property. Under 27.5 year depreciation, which is typical for rental residential property, you could deduct 3.636% of the value of the rental property. So, say the purchase price of your house was $100,000 and you are renting 25% of the property. The depreciable base is $25,000, and 3.636% of $25,000 is $909, so you could deduct $909 as a business expense.

I should note these are all numbers for a full year. Since you only started renting in June, you could only deduct for those expense incurred over the time you were renting the room.

I think an accountant is a wise idea but if you cannot afford one I bet one of the TurboTax versions would be able to walk you through the process. Renting out a room of your residence has some tax consequences but it's not that hard.
posted by Tanizaki at 6:55 PM on February 3, 2016


"Should I hire an accountant?" is one of those questions that, if you're genuinely asking it, the answer is always Yes.
posted by Etrigan at 8:06 PM on February 3, 2016 [2 favorites]


Best answer: The thing about deductions for depreciation is that you will need to track it because it changes your cost basis in the house when you go to sell it.

Also, if you have a loss on the rental, (a possibility if you are taking a depreciation deductions plus have some repairs plus some months with no tenant) there are limits to using to offset other income (passive loss stuff - ask the accountant)

My vote would be to hire an accountant for one year and then use that as a template for future years. they can help you find all the deductions and then walk you through any issues that might arise from taking them. Once you know what counts and what percentage to use it is pretty easy to do on your own.
posted by metahawk at 8:45 PM on February 3, 2016 [2 favorites]


Best answer: TaxACT Online has a walkthrough for precisely this situation. It isn't actually that hard to figure out on your own anyway, so this isn't a situation in which an accountant is required. In our case renting the garage apartment is a break even thing, though, so as long as the taxes come out that way, we don't really look at it too hard. We just plug the numbers in that TaxACT asks for after doing the rest of the return so we can compare the tax liability before and after to ensure we haven't forgotten anything.

We do not claim depreciation on the asset, though. If you are planning to do that, it may be more complex.

All that said, having an accountant do your taxes this year may well be worth it to you if it will provide some peace of mind. If you do hire an accountant, I suggest also running the numbers through TaxACT or whatever you like to use so that you can see what they did differently and also how to get the numbers into the software correctly.

FWIW, TaxACT doesn't charge you unless/until you file (and I think most others are similar), so you can do the practice return at no cost.
posted by wierdo at 9:53 AM on February 4, 2016 [1 favorite]


Best answer: I have a renter in my house and I just had my taxes done yesterday. 50% of all my utility bills can be deducted (including water and trash costs paid to the city.) However, what made me finally throw in the towel and get an accountant to do taxes for me was the depreciation, which I just couldn't figure out. And I vaguely remember reading something saying if I did it wrong the first time, it fucks up my taxes forever, basically (or something like that). For $150 it's nice to someone do it all for me, print it out and put it in a nice folder and have the records for me right there if I ever can't find mine (which is likely, because I'm terrible at filing my stuff properly).
posted by triggerfinger at 5:00 PM on February 4, 2016 [2 favorites]


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