What can I deduct from an owner occupied duplex?

Question

Hi everyone, I just purchased a duplex recently and my mother is renting out the other half. I'm wondering about tax deductions and how I would go about writing off utilities, internet, property taxes and so on and so forth? Do I split this half an half? My mother does have the keys to my side of the duplex and uses the washer/dryer and amenities quite a bit. Since her side is smaller, how should I write off these expenses accurately? Can I just write it off 50/50 legally since she has access to my side of the house? I have heard it is 50/50 but have also seen that people are supposed to make the measurement of deductions based on square footage.

Doris Daily · Answer

Thank you to all of you! I will look into reading that book, Michael. So much to learn!

Michael Noto · Answer

@Doris Daily It might be worth reading the tax book that BP put out last year. It is very informative and gave me a better handle on my taxes going forward.

Deanna McCormick · Answer

utilities , taxes, property insurance, trash are split 50/50. keep each unit's repairs separate pay them separate. outside maintenance split 50/50 , major repairs,, you can split, roof, driveway upkeep, and you claim the rent as income.

We needed a tax write off.. we rented to family member, had a lease with set rent rate,, they never paid rent.. we still took deductions for repairs, ins ect.. and claimed no income, because we had no income from it.. ran it like that for 5 years.. so was a loss for us for that period of time but tax wise for us it was a good thing, eventually family member inherited property so valuation at appraisal was set, and record of expenses was offset with inheritance, so it worked for us.

Basit Siddiqi · Answer

Hi Doris - First and foremost - If you are renting to a family member. Please make sure that you are charging them fair market value rent.

You should allocate expenses in some allocation method unless an expense can be directly allocated to one unit over the other. Example is repairs to a bathroom of the rental unit should be allocated 100% to the rental unit. However, repairs to a common area should be allocated between personal/rental.

Frank Chin · Answer

If it's a simple duplex, same number of bedrooms on each side, I would do a simple 50% for each side.

I currently live in a two family, the owner unit is 3BR/2BA and a finished basement with it's own bath. Tenant unit is 2BR/1Ba. I simply allocate expenses 75/25 owner/tenant. Measuring square footage is meaningless considering the finished basement is not even consider living space for zoning purposes.  I get a smaller expense deduction through the years, but ahead capital gain wise when I sell with the homeowner exemption.

Previously, I live in a triplex I own, unit sizes differ, and I allocate expenses 1/3 to each unit. Why? It's an older style building with large stairwell and hallway space which tenant use and even store some of their stuff. So they use more than the space in their units  Heating is for more than just their units, but includes the public space. You can argue I have the garage also. But I use the space to store tools for building maintenance, so the garage should be allocated the same as the building. In this case, comparing square footage in each unit is also meaningless.

So, I in conjunction with my CPA decide on the simplest allocation that makes sense. For my CPA, it's just something I can justify during a tax audit if it comes to that.