How do I claim rental income on my taxes when I also live in the home as owner-occupant?

The good news is you're on the right track! When you rent out part of your primary residence, you need to report the rental income but can also deduct certain expenses proportionally based on the space used for rental. Since your rental room makes up 12% of your home, you can generally deduct 12% of shared expenses: - 12% of mortgage interest ($2,196 based on your calculation) - 12% of property taxes ($420) - 12% of HOA fees ($360) - 12% of homeowner's insurance ($234) - 12% of utilities you pay entirely (gas and water) - For shared utilities (electricity/internet), you can deduct the portion you pay for the rental space For depreciation, you'll use Form 4562. You can only depreciate the portion used for rental (12%) of the building value (not the land). The standard depreciation period for residential rental property is 27.5 years. You'll need to determine your home's value, subtract the land value, multiply by 12%, then divide by 27.5 for your annual depreciation deduction. You'll report all this on Schedule E. Any direct expenses solely for the rental portion (like repairs to just that room) are 100% deductible.

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I was exactly where you are last year! After asking around endlessly about my rental room, I finally tried https://taxr.ai based on a recommendation, and it was a game-changer. The depreciation calculation that was confusing me so much? It handled it automatically after I uploaded my closing documents. What really surprised me was discovering I could deduct a portion of my internet service (which I hadn't considered), and it correctly showed me how to handle the split utilities situation. The tool found almost $3,800 in deductions I would have missed on my own! When I filed my taxes, I felt completely confident about my Schedule E for the first time. No more guessing about percentages or wondering if I was calculating things correctly. Truly the best money I spent last tax season considering how much it saved me.

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Don't forget that if you make any direct repairs or improvements specifically to the rental portion of your home, you can deduct 100% of those costs! So if you had to fix something in just that room, it's fully deductible, not just the 12%. Also, keep ALL receipts - even small items like lightbulbs or air filters. These add up and are legitimate deductions if used in the rental space.

Did anyone mention the $25,000 passive activity loss allowance yet? If your adjusted gross income is under $100,000, you can deduct up to $25,000 in rental losses against your other income if you actively participate in rental management (which you obviously do since you live there). This is super important because with all those deductions plus depreciation, you might actually show a paper loss on your rental activity even though you received cash income!

Great question! I went through this exact same situation when I started renting out a room in my condo. Your 12% calculation based on square footage is the right approach - that's the standard method the IRS expects. One thing I learned the hard way: make sure you're using the correct square footage. Only count livable space, not garages, unfinished basements, or storage areas. Also, if your tenant has access to common areas like the kitchen or living room, some tax professionals suggest you might be able to claim a slightly higher percentage, but definitely document your reasoning. For the utilities you split with your tenant - you'll want to be careful here. If they pay you directly for half the electric bill, don't include that as rental income. Just report the $12,500 rent and deduct your portion of the utilities. Since you mentioned the house is new, remember that you can't depreciate the land value, only the structure. Your property tax assessment should break this down, or you can use local assessment ratios (typically 80% structure, 20% land, but varies by location). One last tip: consider setting up a separate checking account for rental income and expenses. Makes tracking everything so much easier come tax time!

I'm dealing with a very similar situation - just started renting out a bedroom in my house this year! One thing that hasn't been mentioned yet is keeping detailed records of your tenant screening and advertising costs. Those are 100% deductible business expenses. Also, for the depreciation calculation that's confusing you - you'll need your home's purchase price minus the land value. If your closing documents don't break this down clearly, you can often find the land-to-building ratio on your county assessor's website or property tax records. Quick tip: Since you mentioned splitting electricity with your tenant, make sure you're tracking this consistently. I keep a simple spreadsheet each month showing the total bill, what my tenant pays me, and what I actually pay out of pocket. This makes the tax calculations much cleaner. The 12% calculation you're using sounds right for deductions, but remember that percentage will be crucial for depreciation too - you can only depreciate the rental portion of the home's value over 27.5 years. Good luck with your first year of rental income taxes!