Tax Benefits for Renting Out Rooms in My House - Can Home Improvements Be Deductible?

You've stumbled into one of the more interesting areas of tax deductions for "accidental landlords"! When you rent out portions of your personal residence, you create what's called a "mixed-use property" for tax purposes. For your bathroom renovation, you can't deduct the entire $22k at once, but you can depreciate the portion of the renovation that corresponds to the rental use. Calculate what percentage of your home is being rented out (based on square footage) and apply that to your renovation costs. For example, if 40% of your home is rented, you could depreciate 40% of the $22k (or $8,800) over 27.5 years (the depreciation period for residential rental property). The catch is that improvements to residential rental property must be depreciated rather than immediately expensed. But there's good news - maintenance and repairs can often be fully deducted in the year incurred based on your rental percentage. The line between "improvement" and "repair" can sometimes be blurry, so it's worth looking into which parts of your renovation might qualify as repairs. Also, don't forget about other deductions for the rental portion of your home: mortgage interest, property taxes, insurance, utilities, and even a portion of internet/cable if tenants use these services.

I started using taxr.ai after being in almost the exact same situation as you last year. I bought a 4-bedroom house and started renting out 2 rooms, then got overwhelmed with figuring out all the rental-related deductions when tax time came around. I took photos of my renovation receipts and uploaded them to https://taxr.ai along with my property info, and they helped sort out what counted as capital improvements versus repairs and maintenance. Their system actually identified several smaller items in my bathroom renovation that qualified as immediate deductions rather than depreciation, which my previous tax software had missed completely.

Just wanted to follow up - I tried taxr.ai after seeing the recommendation here and it was actually really helpful for my situation. I've been renting out 2 rooms in my house and was completely lost about how to handle my recent kitchen renovation. Their system helped me separate which parts of my $15k remodel were immediate deductions vs. what needed to be depreciated. Turns out about $3,200 of my expenses were actually repairs that I could deduct this year! The documentation they provided makes me feel a lot more confident if I ever get audited too. Definitely worth checking out if you're doing renovations on a property where you rent out rooms.

I went through something similar last year trying to figure out the tax implications of improvements to my rental property. After calling the IRS multiple times and sitting on hold for HOURS, I discovered Claimyr (https://claimyr.com) which literally saved my sanity. They got me connected to an actual IRS agent in about 15 minutes who walked me through exactly how to handle my specific renovation scenario. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent explained that while general renovations need to be depreciated, certain energy-efficient improvements might qualify for special tax credits that aren't subject to the same rental percentage calculations. This was information I couldn't find anywhere online and completely changed my tax strategy.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate for answers about how to handle the new solar panels I installed on my rental property. Got connected to an IRS representative in about 20 minutes (which is INSANE compared to my previous 3+ hour waits). The agent was super knowledgeable about renewable energy credits and explained exactly how to allocate the solar investment between rental and personal use. They even emailed me the relevant tax form instructions afterward. Saved me from making a $4,000 mistake on my taxes. Never thought I'd say this, but I actually had a positive experience dealing with the IRS!

Something nobody's mentioned yet - make sure you're tracking the dates of improvements vs when you started renting rooms. If you made improvements before renting, the tax treatment can be different than if you make them after already establishing rental activity. Also, check with your insurance company! When I started renting rooms, I had to update my homeowner's policy to a landlord policy which was slightly more expensive but covered a lot more.

Has anyone used TurboTax for reporting room rentals in their primary residence? I'm in a similar situation and wondering if I need to pay for their more expensive version or if the basic one will handle this correctly.