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Tax Information With A Mother's Touch
Published by Eva Rosenberg, MBA, EA
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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA |
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» From: Upper Marlboro, MD Dear TaxMama: I checked out your FAQ, but i didn't see anything that addresses my question, so here it goes. A home is being partially rented out. That is, the tenant is using the basement (and some common area). After reading the instructions for Schedule E, it seems that the square footage of the home must be identified. Then the tenant's occupied portion needs to be identifed, too, to figure the business portion of the expenses. What about the common area like the kitchen? Do I figure that if he's using it half the time, that I can use half the size of the kitchen to include in the allocation? Once the allocation is calculated, it seems I apply it to the home owners insurance and utilities. Since the mortgage interest and property taxes have already been deducted, they would not be used on the Schedule E, I believe. Lastly, I guess the original cost of the home needs to be identified to calculate depreciation? I guess we can add in some of the settlement costs and any subsequent improvements, right? Thanks for bearing up under a very long-winded question. Tom  OK, you've got the general concept. The IRS might object to using portions of common areas, but you could probably convince them. Don't forget to add the square footage of the garage to the house. And take into account the square footage he uses for his car and storage. You can allocate the insurance, utilities, cable tv - if he uses it, gardener, housecleaner - if you have one. As to the mortgage and property taxes - allocate the appropriate percentage to Schedule E also. You'll be reducing the deduction on Schedule A, accordingly. On the cost of the home - look at your original purchase documents. These are the things you don't include in your cost: property tax proration, Add up everything else. From this, you'll need to deduct the value of the land. See if you can find your appraisal report. Worst case, if you have absolutely nothing else to go on, use your property tax assessor's statement. It usually shows the land and building value. Ignore the numbers on the statement - but do use the percentages. (e.g. the statement shows land worth $100,000 and improvements worth $125,000, total property worth $225,000. So your building value is 125/225 = 55.55%) Whew, I'd better go answer someone else's questions while I still have the energy! Good luck! Best wishes, Eva Rosenberg Your TaxMama  |
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| Library of Congress - ISSN 1532-0790 Copyright © 2000-2003 - Eva Rosenberg |
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