House Hack Tax Break

New to Real Estate · Pittsburgh, PA · Member since 2020 · 16 posts · 7 votes

I working on buying my first property to do a house hack in a single family home with a rent by room approach. I was wondering when filing for taxes if there is a tax break or if you would end up paying more in the long run? Are there any pros and cons for taxes with a house hack?

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Evan Polaski

Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes

@Victoria Radcliff, definitely consult with a CPA, I am not one so take this with a grain of salt.

I could see how you could make a case for writing off expenses and being able to depreciate the portion of the house you are renting. i.e. if you buy a 4 bedroom house, and each house is 200 sq ft. House is 2,000, sq ft. You are renting out all three additional rooms, so 600 sq ft, and your roommates have a full bath they share that is 100 sq ft. I could see how logically, you should be able to depreciate 700/2000 sq ft, and of course if you have to repaint bedrooms, replace a toilet, etc those expenses can be written off against the income. (Consult with a CPA, and you are probably increasing your audit risk by doing so).

This would be similar to writing off a home office and various expenses associated with that office, or my wife and I use our house as storage for her staging furniture, and can write off the proportionate sq ft of the overall house for that storage.

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Erik Hatch
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
That’s a good question. I think it depends if you plan on it as a business or just taking income in. Deducting expenses in businesses is how you reduce taxes generally.
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Victoria Radcliff
OP
New to Real Estate · Pittsburgh, PA · Member since 2020 · 16 posts · 7 votes
6y
Hmm... That makes sense. As a first property I was not planning as using this as a LLC since it would be my personal home that would generate passive income. Not sure if it was unlawful to not include it in my taxes and if it would hurt or help me in the process.
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Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
6y
I'm not sure how it would work on a single family but when I house hacked a duplex, all depreciation was cut in half since I was living on one side. I'd assume for a single family you would just divide it by the number of people living in the property but not 100% sure. I would consult with a CPA.
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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
@Victoria Radcliff, definitely consult with a CPA, I am not one so take this with a grain of salt.
I could see how you could make a case for writing off expenses and being able to depreciate the portion of the house you are renting. i.e. if you buy a 4 bedroom house, and each house is 200 sq ft. House is 2,000, sq ft. You are renting out all three additional rooms, so 600 sq ft, and your roommates have a full bath they share that is 100 sq ft. I could see how logically, you should be able to depreciate 700/2000 sq ft, and of course if you have to repaint bedrooms, replace a toilet, etc those expenses can be written off against the income. (Consult with a CPA, and you are probably increasing your audit risk by doing so).
This would be similar to writing off a home office and various expenses associated with that office, or my wife and I use our house as storage for her staging furniture, and can write off the proportionate sq ft of the overall house for that storage.
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Victoria Radcliff
OP
New to Real Estate · Pittsburgh, PA · Member since 2020 · 16 posts · 7 votes
6y
@evanpolaski that is super helpful. I didn't think about it as a write of such as a home office. I will definitely talk to a CPA to see what would work best. Thank you!
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y
@Victoria Radcliff

A house-hack is having a property that is both a personal residence and a rental property.
As such, you have to properly track expenses that are potentially deductible as an itemized deduction(mortgage interest + real estate taxes) and expenses that are potentially business deduction(insurance, real estate taxes, mortgage interest, repairs, depreciation etc).

You will be able to offset the rental income you collect with the deductions you can claim which is a pro.
Whether you will report less taxes or more taxes is dependent on a case-by-case basis and is directly related to the income you bring in and the expenses you report.
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