Hacking a primary residence and being able to write off expenses

3 Replies

Hello BPers,

I am hacking my primary res SFH. It has an non-conforming basement unit that I am renting out. I am claiming that revenue as taxable income and am wondering if I am able to also claim a percentage of all of the expenses tied to the property? Utilities, maintenance repairs, homeowner's insurance? What about the closing costs associated with with purchase: appraisal, origination fee, etc... This property is titled as individually owned under my name and not my business. However, I am renting the basement unit and receiving income. Please advise and much appreciated.

thank you 

Steve K.

@Steve Kirsch

Generally yes.

If the basement unit is accessible from inside your unit the rental may be subject to IRC Sec 280A.  In this situation you wouldn't be able to use the property to create a tax loss.  Tax expenses would be limited to gross income.

If it has a separate entrance and isn't accessible from the main floor generally 280A wouldn't apply.

Hi Eamonn,

 The unit is not accessible from within the house. It has its own separate entrance. So a 280A form would be applicable I presume. 

thank you @Eamonn McElroy

Originally posted by @Eamonn McElroy :

@Steve Kirsch

Generally yes.

If the basement unit is accessible from inside your unit the rental may be subject to IRC Sec 280A.  In this situation you wouldn't be able to use the property to create a tax loss.  Tax expenses would be limited to gross income.

If it has a separate entrance and isn't accessible from the main floor generally 280A wouldn't apply.

 Eamonn, 

Bedroom/Basement rented at FMV is treated as a separate dwelling unit so no limitation on income. (Prop. Reg. 1.280A-1(c)(2), which excepts from the definition of dwelling unit any portion of a unit used exclusively as a hotel, motel, inn, or similar establishment, seems to apply to the situation where a part of the primary residence is rented out. The regulation specifically states that this exception may apply to a portion of a home used to furnish lodging to tourists or to long-term boarders such as students (if that portion is regularly available for occupancy by paying customers and the owner is not treated as using that portion as a residence during the tax year). Thus, any portion of a home used exclusively by a paying renter (e.g., a bedroom) is not included in the dwelling unit and accounted for separately as a rental property. In that case, any net loss attributable to that portion of the home would be deductible as a rental (passive) loss, rather than being subject to the vacation home limitations.

Let me know if you disagree. 

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