What Expenses Count as Deductions for a Live-in Rental Property with Tenant Improvements?

I handle rentals on my own properties too, so I understand your confusion! The IRS does make this unnecessarily complicated, but here's the breakdown: For expenses that benefit only the rental portion (basement), you can deduct 100% of those costs. This includes the basement flooring and hallway lighting in your case. For expenses that benefit the entire property (roof repair, exterior painting), you'll need to allocate based on the percentage of your home used for rental. Calculate the square footage of the basement compared to the total house square footage. If the basement is 30% of your total home, you can deduct 30% of those shared expenses. For appliances like the washer/dryer, if they're used by both you and tenants, you'd also allocate based on that same percentage. If they're used exclusively by tenants, you can deduct 100%. One important distinction: repairs are fully deductible in the year paid, while improvements must be depreciated over time. Repairs maintain your property, while improvements add value or prolong its life. Your roof repair sounds like a repair, but if you upgraded to a better roof, it might be an improvement that needs depreciation.

I was in a similar situation last year with my duplex where I live in half and rent the other half. I spent weeks trying to figure out what counts as a deduction and what doesn't. I finally found this service called taxr.ai (https://taxr.ai) that was actually super helpful with this exact issue. You upload your receipts and documents, and they analyze everything to tell you what's deductible, what needs to be depreciated, and how to handle mixed-use expenses. It saved me from making some big mistakes with my rental property deductions. Specifically for the repair vs. improvement question, they have this tool that categorizes everything correctly based on IRS rules. The best part was they explained everything in plain English instead of tax jargon. Definitely made the whole process way less stressful for me as a first-time landlord.

I tried taxr.ai after seeing it mentioned here and it was honestly super helpful for my rental property situation. I was really skeptical at first (especially since I couldn't find clear pricing), but it ended up being reasonable for what I got. I had a complicated situation with a vacation property that I both use personally and rent out part-time, and they helped me figure out exactly how to allocate all my expenses. The document analysis feature correctly identified which of my renovations counted as repairs vs. improvements, which saved me a ton in taxes by properly classifying some major plumbing work as repairs. Definitely helped me avoid some mistakes I would have made trying to figure it out myself!

For anyone dealing with rental property questions that aren't getting answered easily, I had a frustrating experience trying to get specific answers from the IRS about depreciation schedules for rental property improvements. After waiting on hold for HOURS multiple times and getting disconnected, I found this service called Claimyr (https://claimyr.com) that actually got me through to an IRS agent in about 15 minutes. You can see how it works in this quick demo: https://youtu.be/_kiP6q8DX5c It was honestly amazing after wasting so many hours trying to get through. The IRS agent I spoke with gave me clear guidance on how to handle the specific improvements to my rental property and confirmed I was calculating my deduction percentage correctly. Saved me so much stress and probably kept me from making expensive mistakes.

I need to admit I was completely wrong about Claimyr. After calling the IRS myself and wasting 3 hours only to get disconnected, I decided to try it out of desperation for my rental property depreciation questions. It actually worked exactly as described. Got a call back in about 20 minutes and was connected to an IRS agent who answered all my questions about how to handle improvements vs. repairs on my rental property. The agent confirmed that my new HVAC system needs to be depreciated over 27.5 years, but the repairs to fix water damage could be fully deducted this year. I've been doing my own taxes on rental properties for years and this is the first time I've been able to get clear answers without an entire day wasted on hold. Definitely using this every time I need to call the IRS from now on.

Just as a heads up, if you're renting out part of your personal residence, make sure you're also tracking "days of personal use" vs "days rented." This affects how you calculate your deductions too. Had a friend who got audited because he didn't properly account for the two weeks when his rental unit was used by his in-laws (not paying rent). Also, don't forget about depreciation recapture if you ever sell the property. Any depreciation you claim now will affect your capital gains when selling. I learned this the hard way and got hit with a huge tax bill when I sold my last rental.

Has anyone used TurboTax for reporting rental income from a portion of their primary residence? Does it walk you through the allocation calculations and depreciation stuff decently? I'm debating between that or hiring an accountant this year.

I went through this exact situation last year with my house where I rent out the upstairs to grad students. The square footage method that Olivia mentioned is definitely the way to go for shared expenses like your roof and exterior painting. One thing that really helped me was creating a simple spreadsheet to track everything. I measured my rental space (including common areas the tenants use) and calculated it as 40% of my total home. So for that $2,800 roof repair, I could deduct $1,120 (40% x $2,800). For your basement-specific expenses like the flooring and hallway lighting, those are 100% deductible since they only benefit the rental portion. The washer/dryer is trickier - if your tenants use it exclusively, it's 100% deductible. If you share it, use your percentage split. The repair vs. improvement distinction is huge for tax purposes. Your flooring replacement might be considered an improvement if it's significantly better than what was there before (meaning you'd need to depreciate it over 27.5 years). But if you just replaced damaged flooring with similar quality, it's likely a repair and fully deductible this year. Keep detailed records of everything - photos, receipts, measurements. I learned this the hard way when I couldn't find a receipt during tax prep!