Depreciation and rental income, how does one effect the other?

2 Replies

I am preparing to buy a single family home to live in one room and rent out the other bedrooms. A question my father brought up to me pertains to depreciation and how recognizing rental income of a primary residency effects that depreciation and I did not have a clear answer for him, soooo here it goes!

Basically, is it better and even legal to not claim the income made off bedrooms in my primary residency as RENTAL income by not putting that income in a separate "housing account" and instead depositing directly into my checking account as if it was a side hustle of some sort? Will this give me an advantage in depreciating the full value of the house instead of the just the portion I use?

What about expense deductions and my debt-to-income ratio for future rentals, how can doing this effect those? I want to do everything by the books, nothing shady but also fully take advantage of various tax optimization strategies.

Thank you for any help one can give!

@Joseph Gisler

You need to claim the rental income. You can depreciate the portion of the house eligible to the rental portion. Can be done based on square footage. There are implications relating to the section 121 exclusion and depreciation recapture upon sale. Beyond the scope of this response. Speak to your CPA. Good luck!