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  1. #1
    Join Date
    Nov 2005
    Location
    Los Angeles
    Posts
    15

    Question Primary Residence and Roommate Income

    I live in my primary residence and have two tenants-roommates. The income from their rent is about 50% of my total mortagage & property tax. Do I need to claim the income from them on my taxes? Is it illegal not to? I have heard from an accounting firm that it is OK not to claim them if I am renting to them at below market rates...

  2. #2
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    71,766

    Default Re: Primary Residence - Roommate Income

    Rental income is income. Perhaps your accountant meant that once you prepare your Schedule C you would be able to declare a loss? Here's some official information from the IRS.

  3. #3
    Join Date
    Nov 2005
    Posts
    310

    Default Re: Primary Residence - Roommate Income

    First of all, rental property is reported on Schedule E.

    The income from your tenants should be included in your tax return, but you should include any direct rental expenses, such as advertising and legal fees, and allocate your household expense, like heat, taxes, mortgage interest, etc, between the rental and personal use portions of the building. Probably the best method is to take the square footage of the rental space, divided by the total square footage of the building, and mutlitply it by each expense. Certain personal expenses, like mortgage interest and property taxes, are deductible onon Schedule A.

    Be advised that you should be depreciating the rental portion of the building. If you don't, and the IRS catches it, it will adjust the value of your house to what it would have been had you depreciated it, and then you will have bigger taxable gain on the sale.

    If pay a tax preparer, have the preparer allocate a portion of the previous years fee between your personal deductions on Schedule A, and your business deductions on Schedule E. You get a greater benefit to deducting any part of your tax preparation fee on Schedule E as a business expense, than on Schedule A as a personal expense.

    As Mr. K suggests, you will find publications on renting and depreciation and business expenses on the IRS website: Wwww.irs.gov.

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