Assume someone is a landlord of a 6 unit dwelling. They include all utilities except the phone as part of the rent (gas, cable, internet, electric, trash, plumbing are all shared and included) and charge $150-ish a month more as a result. If they live in one of the dwellings can they then claim these utilities as an expense of operating the dwelling and deduct that on their taxes? Maybe i’m using the wrong terminology for what i’m talking about. What I mean is, if a person charged $600/month for rent and included all utilities except the phone (instead of $450 and including nothing) could that person claim the extra $150 as a necessary expense of the dwelling, and as a result of being a live in landlord recieve free utilities assuming the $750 the other 5 tenants paid to the landlord paid for utilties for all 6 dwellings?
Your options are:
- Obtain a copy of and read the entire IRS Tax Code.
- Consult an income tax expert.
- Wait for an icome tax expert to appear here and give you direction>
- Accept no amateur expert’s opinion(s).
Under those circumstances, the landlord should only write off 5/6 of the utilities as a business expense.
Generally- no.
What about the mortgage and home improvements, could the person claim 100% of the mortgage and improvements as business deductions or only 5/6th of them?
Well- we have the “Office in the Home” deduction, but that does not apply to personal living space. I suppose landlords coudl have one room set aside for an offcie, and there could be deductions for that. However, once we are talking “Office in the Home” we are definately talking “see a Tax Professional”.
In general- personal expenses are not deductable.
However, oddly, there is an “exclusion” from income. If you must live "on site’ and they give you free or discounted housing because of that; then the value of such housing could- in some cases- not be a taxable benefit.
The following is overly simplistic, and there are lots of variations depending on the specific circumstances, but generally:
For the mortgage, you could claim 5/6 as a business expense.
For “improvements”, it varies on the work being performed. If you are improving/repairing an individual rental unit you could probably claim 100% as a business expense or improvement (But beware the difference betweeen repairs and improvements - repairs are expenses while improvements can be “Capital improvements” which are depreciated over time). If you are making repairs/improvements to a common area, then you should only be claiming 5/6 as a business expense. Repairs to the unit you occupy are not a business expense.
What about extra money given to the principal. if the mortgage is $700/month but you pay an extra $500/month can you claim $1200/month as a business expense?
What if you have a 3 bedroom house and 3 roommates, do you claim 2/3 of the mortgage as a business expense?
3 bedroom house and 2 roommates, I mean.
OK, time for some clarification here. And before that, recognize that I’m just some poor schlub who has a piece of rental property. I"m not your attorney or tax advisor, and you probably should get the advice of one.
First, when talking about whether the “Mortgage” is a business expense, recognize that it only the interest portion that is an expense. The amount that goes towards principal is NOT an expense. Therefore an overpayment that goes towards principal is NOT an expense.
Second, the roomate situation adds some complexity to the matter. Claiming “business expenses” only applies if you are running a business. Whether the IRS views renting a room to roomates as a 'business" is a good question.
And of course you realize that you’ll need to report the income you receive in rents as income on your taxes…
and dont forget to claim the rental income from those 2 roomies.
See, this is why I cam empathize with those poor schlubs on the IRS help-line, and how they often get questions wrong.
The OP’s first question has nothing at all to do with his real question and situation apparently is.
Living in an Apartment building in which you are a landlord is entirely different from “having a couple of roomates in my house”. In an Apt building- each Unit is a seperate and distinct legal address. Not so when you share your home.
Now, if you are indeed having this situation " 3 bedroom house and 2 roommates", then the CRITICAL question is : are those “roommates” or “tenants”?
If they are a couple of buddies, relatives, frat brother, etc- and you are renting to them in a more or less “let’s share living expenses” manner- then you don’t have a business, no expenses are deductable as "business expenses’ (but the usual mort interest and prop tax go on SCH A, of course) and generally- no income is claimed. YMMV
If however, you are renting at more or less FMV and holding out “rooms to let”- then you have a business- one that is hugely complicated by the fact you also live there. In this case- don’t ask questions on a MB. Go see a Tax Professional. Really- don’t screw around with asking for 'curbstone" opinions or even Turbo-tax or the like. Take all your stuff and see an EA or CPA.
I do not know how it works for sure. I always figured you took the income from your roommates (assume $900/month for 2 roommates) and deducted the costs of the house you needed for them to live in. If it was $800/month total for 2/3 of the mortgage, insurance, repairs, etc then you would only pay taxes on $100 a month.
It is “Gross Income <Deductable Expenses>=Taxable portion”, but what is and is not “Gross Income” and what is and is not “deductable expenses” is a question for a Tax professional in this current case.
Rarely would the Mortgage payment be deductable- Interest- almost certainly, but maybe on SCh E, maybe Sch A. Generally, only a portion of "repairs & insurance’ can be deducted. And, the % is not nessesarily 2/3rd at all. YMMV. See a Tax Professional.