House hacking and taxes

[Wil Cooper]

Hey everyone,

I'm purchasing a duplex in Portland, OR with an FHA. Property here is quite expensive, but even with PMI and a high mortgage the payment after rent comes in will be less than renting in most cases. Anyway, I've read the book from BP on advanced tax strategies and have done some of my own research, but haven't been able to find the answer to my question. If the rent from the other unit does not pay my expenses and mortgage, and therefore is not cash flow, is that rent still taxed as normal income?

Thanks for your help!

-Wil

[Bob Norton]

@Wil Cooper Yes, you must report your rent income on your tax return. You are able to deduct expenses related to the portion of your home that is rented. In a duplex, generally you get to deduct 1/2 of the following expenses: mortgage interest, property taxes, insurance, and PMI (if qualified). You can also deduct any expenses directly related to the rented portion, such as minor repairs and utilities. Plus, you get to deduct depreciation for 1/2 of your home.

Check with a CPA for other expenses that you can deduct.