Renting a room in my home

Discussion in 'US Taxes' started by G Burton, Jul 5, 2007.

  1. G Burton

    G Burton Guest

    I would like to rent a room in my home.

    1) Since we would have to share some facilities (kitchen
    bathroom, etc.), what would we do about the "exclusive use"
    rule?

    2) Suppose I deduct home depreciation, and I later wind up
    selling the home and upgrading to a larger home. I would
    probably continue to rent out a room in the larger home.
    What consequences (if any) would there be to taking the
    depreciation?

    --
    Gary Burton
     
    G Burton, Jul 5, 2007
    #1
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  2. G Burton

    Guest

    On Jul 4, 11:25 pm, "G Burton" <> wrote:
    > I would like to rent a room in my home.
    >
    > 1) Since we would have to share some facilities (kitchen
    > bathroom, etc.), what would we do about the "exclusive use"
    > rule?
    >
    > 2) Suppose I deduct home depreciation, and I later wind up
    > selling the home and upgrading to a larger home. I would
    > probably continue to rent out a room in the larger home.
    > What consequences (if any) would there be to taking the
    > depreciation?
    >
    > --
    > Gary Burton


    1) you would exclude a portion of those expenses from your schedule
    E. (I say 50% is a fair estimate if you are single and the other
    person is single) Question: Who will pay the utilities, trash
    removal, taxes, any other expense associated with the house? If you
    are paying the expenses, allocate the expense accordingly. If you are
    having the new person pay their share, no deduction.

    2) Depends on how you look at consequenses!! You do have $250,000
    ($500,000 if married) exclusion of gain on the sale of your home if
    you meet the residence tests. You would have to recapture the gain on
    the depreciation. For example, you bought your home for $300,000 and
    you have depreciation of $10,000. You have taken $10,000 of expense
    against ordinary income on Sch. E. Now you sell the home. Your home
    sells for $500,000. The gain on the sale of your home is $200,000.
    You must recognize $10,000 as gain on Form 4797 and taxed at a 25% tax
    rate (Sec. 1250).
    The remaining $190,000 is tax free.
     
    , Jul 6, 2007
    #2
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  3. G Burton

    G Burton Guest

    That's an excellent answer to part 2, but I don't think I was clear
    enough on part 1.

    What I was thinking about with part 1 was a deduction amounting to a
    percentage of my mortgage payment. If I were using a single room for an
    office, the exclusive use rule would only allow me to deduct the portion of
    my mortgage that represents the square footage of that room because only
    that one room is used exclusively for business. In the case of a renter,
    however, the renter (who happens to be my mother) will require use of a
    shared bathroom and shared kitchen. She will actually have access to the
    entire house, so it might be arguable that I could deduct 1/3 of my mortgage
    based upon the fact that there are 3 people using the home. I am expecting
    to deduct 1/3 of my utilities, cable TV, etc.

    This must be a common question, but I haven't been able to find it in
    the standard IRS literature. Although I have run a home business before,
    I'm not a tax expert -- as I'm sure you have guessed by now. Can you point
    me to a good reference?

    Thanks!!

    >
     
    G Burton, Jul 6, 2007
    #3
  4. G Burton

    G Burton Guest

    That's an excellent answer to part 2, and possible also to part 1, but
    please indulge me with a little more clarification.

    What I was thinking about with part 1 was what is fair to use to compute
    the percent business use. If I were using a single room for an office, the
    exclusive use rule would only allow me to deduct the portion of my expenses
    that represents the square footage of that room because only that one room
    is used exclusively for business. In the case of a renter, however, the
    renter (who happens to be my mother) will require use of a shared bathroom
    and shared kitchen. She will actually have access to the entire house, so
    it might be arguable that I could deduct 1/3 of my mortgage interest and all
    utilities based upon the fact that there are 3 people using the home. I was
    expecting to deduct 1/3 of my utilities anyway, but I am uncertain about
    mortgage interest, cable TV, etc.

    This must be a common question, but I haven't been able to find it in
    the standard IRS literature. Although I have run a home business before,
    I'm not a tax expert -- as I'm sure you have guessed by now. Can you point
    me to a good reference?

    Thanks!!

    <> wrote in message
    news:...
    > On Jul 4, 11:25 pm, "G Burton" <> wrote:
    >> I would like to rent a room in my home.
    >>
    >> 1) Since we would have to share some facilities (kitchen
    >> bathroom, etc.), what would we do about the "exclusive use"
    >> rule?
    >>
    >> 2) Suppose I deduct home depreciation, and I later wind up
    >> selling the home and upgrading to a larger home. I would
    >> probably continue to rent out a room in the larger home.
    >> What consequences (if any) would there be to taking the
    >> depreciation?
    >>
    >> --
    >> Gary Burton

    >
    > 1) you would exclude a portion of those expenses from your schedule
    > E. (I say 50% is a fair estimate if you are single and the other
    > person is single) Question: Who will pay the utilities, trash
    > removal, taxes, any other expense associated with the house? If you
    > are paying the expenses, allocate the expense accordingly. If you are
    > having the new person pay their share, no deduction.
    >
    > 2) Depends on how you look at consequenses!! You do have $250,000
    > ($500,000 if married) exclusion of gain on the sale of your home if
    > you meet the residence tests. You would have to recapture the gain on
    > the depreciation. For example, you bought your home for $300,000 and
    > you have depreciation of $10,000. You have taken $10,000 of expense
    > against ordinary income on Sch. E. Now you sell the home. Your home
    > sells for $500,000. The gain on the sale of your home is $200,000.
    > You must recognize $10,000 as gain on Form 4797 and taxed at a 25% tax
    > rate (Sec. 1250).
    > The remaining $190,000 is tax free.
    >
     
    G Burton, Jul 6, 2007
    #4
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