Renting to Roommates


Today TaxMama® hears from Ellen in the TaxQuips Forum, who is getting conflicting information.  “I had no idea, when we decided to be responsible parents to my son and the son of a family friend, that we’d have such a headache at tax time when we decided to start charging “rent” after they graduated from college!

My question is this: You indicate in other posts that I can add a portion of the common areas square feet (bath, kitchen, laundry, living etc.) to the dedicated rental square feet (i.e. bedroom) – can you point me to the IRS documentation or other source that allows that?  I think it is a very reasonable and logical approach (otherwise the rental would get no depreciation on the kitchen, bath, and laundry but they contribute to the wear and tear, significantly!). The reason I ask is I received an opinion from a CPA that the only “reasonable” method for our situation is to use the bedroom square feet only.”

                         

Dear Ellen,

Aumakua, our tax pro in Hawaii says:

The IRS doesn’t have to be reasonable and frequently are not. I don’t include common areas because they are not exclusive to the tenant. To my knowledge, and with 20 yrs experience, I know of no IRS allowance for common areas.

The CPA and Laura are right.

However, if you are feeling aggressive and keep very good records, and can prove their use of all the common areas (note: put that into the written lease), with photos, etc. you have a strong case in the event of an audit.

It is an aggressive position. But it is a winnable one.  The key is the documentation.

Incidentally, when I had roommates, I didn’t want to hassle with who must clean what, when. So I built in the cost of maid service into the lease. They had to pay their share of a weekly housekeeper. That way, the place was always tidy and clean and I didn’t have to stress. Consider building that into the lease, or modifying the lease fee to reduce it a bit and add the cost of a cleaning service.

And remember, you can find answers to all kinds of questions about renting rooms and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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