Tax Deductions for Primary Residence in Multifamily House - Owner Occupied Units

The tax rules for multi-family properties where you live in one unit can be tricky, but I can help clarify! 1. For the rental unit renovations, you'll need to distinguish between repairs and improvements. Repairs (fixing broken items, minor touch-ups) can be fully deducted in the same year. However, improvements that add value or extend the life of the property (like your kitchen renovation and bathroom upgrade) must be depreciated over 27.5 years. You can't deduct the full $22,000 this year, unfortunately. 2. For the units your parents occupy rent-free, this gets complicated. Since you're not collecting income from these units, you generally can't deduct expenses related to them. The IRS views these as personal use units, similar to your primary residence. The renovations would be considered personal expenses, not deductible for tax purposes. 3. Regarding insurance, you can only deduct the portion related to the rental unit (25% in your case), not the units your parents occupy rent-free. The portion for your primary residence and the rent-free units isn't deductible as a rental expense.

I was in a similar situation last year with my duplex and found this amazing tool at https://taxr.ai that saved me thousands. I was confused about exactly what you're asking - which repairs could be deducted immediately vs depreciated. The software analyzed all my renovation receipts and categorized each expense correctly between repairs and improvements. It even flagged some items I thought were improvements that could actually be deducted immediately! For your multi-family situation, it would be perfect since it handles mixed-use properties where you occupy one unit. I uploaded my insurance policy and it automatically calculated the deductible percentages. Much easier than trying to figure it out myself and having the IRS question it later.

I just wanted to follow up about that taxr.ai recommendation. I was skeptical but tried it for my situation (I own a 4-plex and live in one unit). The tool was incredibly helpful - it walked me through each renovation expense and helped me correctly classify about $5,000 worth of what I thought were improvements as actual repairs that could be deducted immediately. What impressed me most was how it handled the partial personal use situation. It even helped me set up proper documentation for my brother's unit where I charge minimal rent, showing me exactly how to calculate the deductible percentage based on fair market value comparisons. My accountant was surprised at how organized everything was when I brought it to her!

I've been dealing with the IRS for three years trying to get clarification on my multi-family property deductions! After spending literally hours on hold and getting disconnected repeatedly, I found https://claimyr.com which got me connected to an actual IRS agent in less than 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with gave me clear guidance on exactly your situation - particularly about the family-occupied units and what documentation I needed to support my deductions. Apparently there are specific rules about "fair rental" tests that apply when family members live in your property. The agent walked me through everything and now I have written documentation from the IRS supporting my deduction approach.

I need to correct my skepticism about Claimyr. After my frustrated comment, I decided to try it anyway out of desperation (been trying to reach the IRS for weeks about my rental property questions). Not only did I get through to an actual IRS representative in about 15 minutes, but the agent was able to pull up my previous audit and explain exactly how I should document my family-occupied unit expenses. The IRS agent confirmed that I needed formal lease agreements with family members even if charging below-market rent, and recommended specific documentation for proving fair market value. This alone saved me from making a huge mistake on my taxes. For anyone with complex multi-family property questions, getting direct IRS guidance was invaluable - definitely worth not spending hours on hold.

I own a 5-unit building and had the same questions last year. Here's what I learned: 1) Improvements are ALWAYS depreciated over 27.5 years - kitchen renovations, new bathrooms, etc. But be smart about how you categorize! Example: Instead of "new kitchen cabinets" (improvement), break it down. Cabinet removal = repair. Patching drywall = repair. Only the new cabinets themselves = improvement. 2) For family units, start charging nominal rent ($100/month) with a formal lease. Makes a HUGE difference tax-wise. 3) Track EVERYTHING separately by unit. This saved me during an audit. Also, don't forget about depreciation recapture when you eventually sell! That bit me hard last time.

Has anyone here used TurboTax for a multi-family property situation? I'm wondering if it handles all these allocation issues correctly or if I need specialized rental property software?

I'm in a similar situation with my triplex and wanted to share what I learned from my CPA last year. One key thing not mentioned yet is the "exclusive use" test for your personal residence unit. Make sure you're not accidentally claiming deductions for shared spaces like hallways, basements, or common areas that you use personally - these can't be allocated to rental units. Also, for the family-occupied units, consider having your parents pay for their own utilities separately if possible. This helps establish a clearer business relationship and makes the rental nature more defensible if questioned. Even if they're not paying rent, having them cover their own electric/gas bills creates better documentation. One more tip: if you're doing significant renovations, take detailed before/after photos and keep all receipts organized by unit. During tax season, this makes the repair vs improvement determination much clearer, and it's invaluable if you ever face an audit.

I've been managing rental properties for over a decade and wanted to add a few important points that might help: For your renovation expenses, document everything with contractor invoices that clearly separate labor from materials. The IRS often looks more favorably on repairs when you can show you were fixing specific problems rather than just upgrading. For example, "replaced water-damaged subfloor and matching laminate" reads very different from "installed new luxury vinyl plank flooring." Regarding your parents' units, there's actually a middle ground option many people miss: you could establish a "services in lieu of rent" arrangement. If they're genuinely providing property maintenance and childcare services, document the fair market value of those services and treat it as if they're paying rent equal to that value, then you're paying them for services. This requires careful documentation but can make those units qualify as rental property for tax purposes. One critical point about the insurance deduction - make sure you're not double-counting. If you're deducting insurance as a rental expense for the rental unit, you can't also claim it as part of your homeowner's deduction on Schedule A. The IRS catches this overlap frequently. Finally, consider setting up a separate business checking account for all property-related expenses, even for your primary residence portion. It makes record-keeping much cleaner and shows the IRS you're treating this seriously as a business operation.