rental house

[grambuffy]

Parents bought a 4 bedroom home to rent out and have their dependent college student use also. It is four bedrooms and is rented out all year. Daughter comes home for summer. They rent to 3 students who each have bedroom and run of the house. Is it legal to depreciate and use 75% of the expenses as offsets to rental income? Do they have to add rental income from the daughter. Each person pays $250 a month. I am confused on this one. Any help would be appreciated.

Thanks, Kathy

[Pacun]

Parents bought a 4 bedroom home to rent out and have their dependent college student use also. It is four bedrooms and is rented out all year. Daughter comes home for summer. They rent to 3 students who each have bedroom and run of the house. Is it legal to depreciate and use 75% of the expenses as offsets to rental income? Do they have to add rental income from the daughter. Each person pays $250 a month. I am confused on this one. Any help would be appreciated.

Thanks, Kathy

Depreciate 75% of the structure, 0 for the land and take 3/4 of utilities, taxes, mortgage interest, insurance, etc. The other 25% will be considered personal use of the owners, which might fit on schedule A (taxes and mortgage interest).

[Bart]

Parents bought a 4 bedroom home to rent out and have their dependent college student use also. It is four bedrooms and is rented out all year. Daughter comes home for summer. They rent to 3 students who each have bedroom and run of the house. Is it legal to depreciate and use 75% of the expenses as offsets to rental income? Do they have to add rental income from the daughter. Each person pays $250 a month. I am confused on this one. Any help would be appreciated.

Thanks, Kathy

I would have the daughter pay rent (even if parents had to gift her the money) and then take all expenses.

[Pacun]

I would have the daughter pay rent (even if parents had to gift her the money) and then take all expenses.

Good point.... BUT why do you want to deviate from reality??? The truth is that she doesn't pay rent. I would go with intent and reality (both are the same since parents did not intent to collect rent from daughter).

[joanmcq]

Any parts of the house used by the daughter (relative at below FMV) is personal use. So you can depreciate & take expenses based on the sq. ft of the bedrooms and any areas not used by the daughter (ie private bath), and probably take 75% of utilities. See the treatment of B&Bs.

[jasdlm]

I have two of these. I have been entering full expenses and then entering personal use by number of days (i.e. 3 BR house, 2 renters, 1 child of taxpayers = 122 days of personal use). Does anyone see a problem with this method? Also, wouldn't it be true that no loss would be allowed given the personal use?

Please let me know if I'm not thinking this through clearly.

[jklcpa]

jasdlm, I would use % method rather than days because in the situation described, others were also using the property on those same days as the daughter.