First year filing - tax question

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I have read these tax tips but am not sure if our situation applies, so any help would be appreciated.

So we have one property and one mortgage. We bought this property with a 2 bedroom apartment above the garage and have built a small house beside that for us to live in, and are now renting out the apartment, which is a separate building.

So for taxes- since we have one mortgage, can I deduct the mortgage interest? We started renting it out in August, so I am hoping to be able to deduct the interest from then on, or at least a portion of it, since it’s all on the same mortgage.

We have 2 electric bills - one specifically for the guest house. I was hoping I could deduct that whole thing starting in August.

Cable: We have 1 cable bill. I was hoping I could take the bills from August, add them up, and divide them by the number of days from August till December for a per day rate and then multiply that by the days we’ve rented last year - 27 days.

I was hoping we could do that for taxes too.

This is our first year filing taxes since we’ve been renting.

Thanks in advance.

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OK, I’m not a tax lawyer, so take this with the proverbial grain of salt…

I believe that the shared expenses (mortgage interest and cable) are based on the area of the rented part as a percentage of the total area of all structures which share the expense, whereas the separate expenses (electricity) apply directly to the rental. The number of days it’s rented are irrelevant if the space is exclusively used for renting (i.e. you don’t use it for yourself when it’s not being rented), but you can start deducting only from the date you started renting (August). Don’t forget about other expenses such as homeowners insurance, property tax, water, sewer, trash collection, etc.

There are differences in how you treat some expenses such as repairs and improvements if the part you rent is a completely separate structure, but you didn’t list any of those types of expenses and you didn’t say whether the garage is also included in the rental or used by you.

If you use TurboTax, it walks you through all this stuff. Even if you don’t use TurboTax, there’s lots of info on Intuit’s website.

BTW, I kind of assumed that you’re in the US, so sorry if that’s wrong.

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Thank you Brian. I will use Turbo Tax, but as a newbie, it’s all a little scary. I appreciate your advice.

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You can deduct expenses from the date “available to rent” If you started marketing the unit before August.

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Get a GOOD tax person! It’s worth a few hundred tax deductible dollars to do this right. (I am not a tax person, and have not filed my first rental tax return, so take this as completely worthless advise).

In the USA

You can’t deduct all your interest and cable, you will have to prorate based on a reasonable bases (e.g. square foot percentage or maybe based on your two utility bills).

Don’t miss, you are also able to depreciate the building you are renting. This is a big decision. You may have to reclaim the depreciation when you sell the house. It’s a decision not to be taken lightly.

AirBnB has a great tax guide on their site that will help you get started. Read it, and read it again. Even if you hire a tax guy, read it so you can ensure the tax guy isn’t some rookie that doesn’t know a 5 year from a 27.5 year depreciation class.

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