by Solomon Poretsky
Earning rental income in your home creates new tax write-offs.
If you get rental income from your home, such as if you occupy one half of your duplex, you are in for a world of tax deductions. You get all of the usual write-offs on your house. At the same time, you also get to claim a number of additional deductions against the rental income from the portion that you rent out.
Personal Residence Expenses
You get to claim all of the same personal residence expenses that you would if you did not have rental income. All that you need to do is to allocate them on a pro-rata basis. In other words, if you own a duplex, you can write off half of your mortgage interest, half of your property taxes and half of any other deductible expenses like points or mortgage insurance. Simply claim those deductions on your Schedule A and don't worry about the other half of those write-offs
-- you will be using them.
Rental Operating Expenses
After reporting your rental income on your Schedule E, you get to write off all of the operating expenses that you pay for your rental property. Here, you carry over the unused half of the expenses that you deducted on Schedule A. You can also write off anything else that you spend on the rental. This includes management fees, repairs to the rental half of your property and utilities that you pay exclusively for the rental. The IRS also lets you claim depreciation, which is a write-off simulating the gradual wearing down of the property. To figure your depreciation, divide the value of the rental half of your building by 27.5. In other words, if you paid $500,000 for both halves of your duplex and it is a $400,000 building sitting on $100,000 worth of land, you would divide $200,000 by 27.5 and write off $7,273 a year for 27 1/2 years.
Shared Rental and Personal Residence Expenses