Taxes owner occupied duplex

3 Replies

Hi All Can someone give me technicals on how taxes work on an owner occupied duplex in Philadelphia, PA? I collect rent from a roommate in the first unit and also collect rent from the second unit. How is it determined if I owe taxes?

@Brian Wert I am not sure how homestead exemptions work in PA, but in Michigan you could do a 50% homestead exemption.  Over here the homestead exemption normally lowers taxes by about 40% if you do a 100% exemption on the whole property, so I'd figure half of that.  Best way is to call the city, because they will tell you how your exemption is setup and tell you if you set it up correctly.  You may find out you have no exemption setup when you should have in the first place.

@Brian Wert

What @Casity Kao said (partial homestead exemption) applies to local property taxes. I believe you asked about IRS taxes. 

If so - you will break your property into 3, for tax purposes:
- unit 1, personal part
- unit 1, rented part
- unit 2, rental.
(The last two could be combined, in theory, but I would not)

Please read this excellent intro by @Brandon Hall .

@Brian Wert

I would suggest reporting 2 rental properties on your tax return
Duplex Unit 2 & Duplex Unit 1(1 room)

You are entitled to a expense/capitalize all the costs directly attributable to the rental units.
Example - You pay to advertise the units. you would be entitled to deduct 100% of this expense.

You are entitled to take a pro-rated expense for costs that are indirectly attributable to the rental units. The ratio you use needs to make logical sense like rented square footage / livable square footage or rented bedrooms / total bedrooms.
Example - Costs such as real estate taxes, mortgage interest, utilities are normally indirect costs and calculated as such.

Basit Siddiqi, CPA

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