Rental Property Investor · Plymouth, MA · Member since 2017 · 5 posts · 1 vote
What is the appropriate way to handle depreciation, tax destructibility of interest, taxes, closing cots, and utilities when you are house hacking a 3 family? Purchased in April 2018 and also understand there are some newly enacted 100% destructibility for some repairs that might be exclusive to this year. Can I take these and deduct 2/3 of the cost as I am residing one of the 3 units? Is it 2/3 destructible as 2/3 is rental or is it based on total bedrooms (i'm in a 2, renting a 3 and a 2) or total rented square footage vs total as a guide, etc? Are there advantages to doing repairs this year due to the tax changes, or is the same applicable next year as well?
Tax hacking is a little more complicated than house hacking. :)
There are some general rules that you can read about here, and then there's some higher-level stuff that is best left for tax professionals.
But basically - yes, you will divide your property into personal part and business/rental part, using either sq ft or rooms or some other reasonable method. Then you will be splitting expenses accordingly.
The new rules are not just for this year. They started this year and will stay that way. Details are too complicated to dive into when you're brand new to this. Start with learning the basics first.
By the way, the word is "deductibility." Destructibility is what the IRS will do to you if you mess up. (Just kidding.)
Accountant · Battle Ground, WA · Member since 2018 · 91 posts · 48 votes
8y
@Tony Varao
Micheal nailed it biggest concern is coming up with a reasonable way to split your house into primary residence vs rental for taxes. Couple quick thoughts;
-keep detailed records of all property related expenses (I would recommend opening a separate account to avoid mingling any personal/ rental money).
-Don’t forget about the security deposits and any local state laws regarding how you have to handle them
-as long as you have documented everything a tax professional can help you sort it out.
Rental Property Investor · Plymouth, MA · Member since 2017 · 5 posts · 1 vote
8y
Thank you both for the information. LOL... I know that its deductibilty, the auto correct pulls that word up as it does not recognize it and suggests the destructibility . Very clever response.,.. a tip of the hat to you. Many thanks Michael and Luke!