# US income tax question for deducting expenses for shared home rentals

Hi everyone, I live in the US and am preparing to file my taxes. I’ve kept meticulous records for my expenses but since I rent a room in my house I’m trying to figure out how to divide the shared expenses such as utilities and home maintenance. I’ve done a lot of internet searching and am getting a variety of answers, including 1) using the square footage of the room divided by the whole house size, 2) dividing by the number of rooms exclusively for the guest by the number of rooms in the house, or 3) dividing by the number of rooms available to the guest (included common areas) by the number of rooms in the house. I rent two bedrooms of my 3 bedroom house and guests have equal access to the kitchen and living room as do I. Last year I used 2/3 as my rental portion. But some websites suggest you only use the size of the room divided by the size of the whole house, but this would obviously give me a much lower percentage because it wouldn’t account for the shared areas (in my case, about 300/1500=20%). I just want to make sure I’m doing this correctly if I continue to deduct 2/3 of my expenses.

My accountant last year let me use 2/3 but I got the impression that he seemed to think I should use the square footage percentage method instead (although he didn’t comment on whether to include a portion of the square footage of the kitchen and other shared areas).

I use the schedule E for my rental income and expenses. How do you all divide your expenses when you have a shared home rental?

This isn’t the answer you are looking for, but unless your AGI is about \$150k+ or you have some crazy audit flag, nobody is going to come out with a tape measure. Just pick a calculation method and stick with it.

2 Likes

Ideally, you would come up with a percentage based on two separate factors.
1 for the percent of space used exclusively by guests.
1 for the percent of space shared by you and guests and the percent that guests use that space.

Example:
You have a 2000sqft home. Your listing is a private room with private bathroom totalling 200sqft. You also allow your guests to use your kitchen and living room areas which total another 800sqft. You estimate that your guests use the common areas about 50% of the time.

The exclusive-use percentage is 200/2000 = 0.10 (10%)
The shared-use percentage is 800/2000*0.5 = 0.20 (20%)

And so your business usage is the sum of the two (10% + 20%) and you would deduct 30% of all of your whole-home expenses (including things like repairing the roof and remodeling the kitchen).

In reality, this may not be any better than just picking a number like “2/3”; however, it is very easy to justify if you ever need to.

BTW, I have no idea if an auditor would ever care, but if you want to be honest with yourself, compare your whole home expenses from before you started hosting to the same expenses after and see if your estimate lines up. For your “2/3” number to be accurate, your expenses after hosting would need to be 3 times higher than before hosting.

Square footage is common, but the requirement is that your formula must make sense and be defensible. I would not count the shared space; space that is shared is generally considered personal use.

From IRS Publication 527: Renting Part of Property

"If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property.

You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040 or 1040-SR). You can also deduct as rental expenses a portion of other expenses that are normally nondeductible personal expenses, such as expenses for electricity or painting the outside of the house.

There is no change in the types of expenses deductible for the personal-use part of your property. Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040 or 1040-SR).

You can’t deduct any part of the cost of the first phone line even if your tenants have unlimited use of it.

You don’t have to divide the expenses that belong only to the rental part of your property. For example, if you paint a room that you rent or pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. If you install a second phone line strictly for your tenant’s use, all the cost of the second line is deductible as a rental expense. You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes.

How to divide expenses.

If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. You can use any reasonable method for dividing the expense. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home.

Example.

You rent a room in your house. The room is 12 × 15 feet, or 180 square feet. Your entire house has 1,800 square feet of floor space. You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. If your heating bill for the year for the entire house was \$600, \$60 (\$600 × 0.10) is a rental expense. The balance, \$540, is a personal expense that you can’t deduct."

However, if your designated rental space has personal use for more than 14 days per year or more than 10% of rental days, the dwelling is considered to be used for both rental and personal, and your deductions are limited.

See IRS topic 415:
“If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You won’t be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest, real estate taxes, and casualty losses, and rental expenses like realtors’ fees and advertising costs). However, you may be able to carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year.”

Also be aware that your property tax and mortgage interest expense deduction for the space must also be reduced to reflect the value of land vs. building, which you can pull from your property tax assessment. If you take depreciation on the building, start with the building proportion from the property tax assessment, not the entire value of the real estate. Land cannot be depreciated. You can depreciate land improvements, such as a new driveway.

There are many avenues to fully expense, rather than depreciate over time, a capital improvement (e.g., gut and renovate bathroom) or purchase (e.g. new stove) in year one – Section 179, bonus depreciation, and de minimus safe harbor. Consult with your tax advisor.

It is correct that audit risk may be low, but the downside impact of getting sideways with the IRS is large. Audit risk increases if there is potential for a disgruntled neighbor to report your business. Rare, but it happens.

The above is not tax advice; it is for discussion purposes only.

Hi @dpfromva, this is a really great summary, thank you! I have searched the IRS documents and have seen the document you referenced, but I don’t recall seeing any specifics about how to treat shared space. Do you have any references to back up your comment above? I have been including shared spaces in my allocation, because the guests do have full use of the kitchen, laundry, room, etc, and when they are using those areas it excludes me from using them but if the consensus is to not include any common areas I am certainly open to adjusting my calculations.

Method 1 leads me to ask what is considered a room? Is it the number of bedrooms (hence why I use 2/3) or does the bathroom, kitchen, laundry, dining, etc. all count as a room (in which case I’d have 10 “rooms” and the guest has access to 8 of them, but I think I’d have a hard time justifying 80% of my house towards the rental expenses).

Haha, thank you!

Thanks, @Brian_R170. This was kind of my thought process, since guests use the common areas equally as much as I do, so using your split method would probably equal about 2/3. I’ll run the numbers and see what I get.

This is certainly true for variable expenses like utilities, but for fixed expenses such as mortgage interest, homeowners insurance, property taxes, yard maintenance, those would not increase by adding more people in the house. To be honest, most of my expenses are fixed which is one of the big advantages of renting out a room, since I can now deduct a portion of the expenses I’d be paying anyway. Am I missing something in your comment?

My accountant says my home office is deducted by square footage and the utilities by a percentage of that square footage used over the entire house. ANY shared business areas such as the kitchen, bathroom, etc. he won’t deduct as they’re “multiple use” rooms and therefore, not solely for the business.

Sorry, yes, I was only the costs that actually increase for that last part, and those costs would also include things you might not be thinking of, like buying new furniture for the common areas.

It’s more that you would have to convince the IRS of the validity of your method. IRS generally frowns on having your cake and eating it too (if you get to use the laundry to wash your clothes AND to deduct rental expenses for the square footage of the laundry because guests are also allowed to use it). Unless you have a powerful lobby, such as the National Association of Realtors, to influence regulations to allow cake-having and cake-eating for certain constituents. (Which is why we should organize, but that’s a topic for another day.)
See TurboTax question: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/i-rent-out-a-room-in-the-house-that-i-own-as-well-as-live-in-this-house-what-deductions-am-i/00/750815
Includes the statement “Only the exclusive used are is considered rental area. Common area is available to all and is not a factor in allocation of expenses.” Even if you’re not in it, it’s available for your use.
Let’s carry this to an extreme to show the difficulty. (As you have sort of done with your difficulty in justifying “80% of the rooms” if attempting to apply the room count method to shared space.) Suppose your space is a 1 bedroom and you vacate the bedroom and sleep on the living room sofa when hosting guests. Would anyone buy your claim that 100% of the space is allocable to rental expense, even though you live there?

This has been a thorn in my side for 3 years now: How much space to count and not count.

We rent 2 spare bedrooms in our owner-occupied single family home. The percentage of square footage of the rooms is almost exactly 20%, which is a nice number to work with; however, there are common areas and 2 shared shared bathrooms. We are confident our guests account for more then 20% of our utilities costs. But I also know I can’t count shared spaces.

It gets a bit more complicated for us bc my partner is a massage therapist and he washes his sheets at home (it’s a lot cheaper than having them professionally laundered). He’s been doing this for almost 10 yrs and I’ve been deducting a portion of our utilities from his income.

What I decided for tax year 2019 is to split everything in thirds: Airbnb, massage, and us. I’ve been tracking our monthly expenses on a spreadsheet for years so we contribute fairly to a shared house account. This setup an easy way to know exactly what we’ve spend.

Even our combined 3 incomes don’t come close to \$150k, so we’re far below the risk of being audited, but I feel confident that if I were to be audited, I can support my reason for splitting our expenses, and I have years of data to back it up.

I’ve been using TurboTax for years now, and I find their help menus and threads very helpful, even for some the more nuanced expenses, such as our state-required \$1M homeowner’s insurance policy has been a tough to calculate. I’ve also paid for and utilized their CPA services, and they’ve all agreed (you get a different person each time you call) that using the percentage of square footage to calculate utility costs is a fair and reasonable approach (although, I decided to round up and use 1/3).

I also applied the Qualified Business Income (QBI) deduction to my return and got a sizable reduction in taxable income (coincidently, 20%). The definition of QBI is quite vague, but if it helps reduce your tax obligation, go for it.

PS: Be careful not to get overzealous with deductions. The principal portion of you mortgage may not be deductible, and I don’t think you can count tax-deductible expenses twice. For instance, let’s say your rental space is 20% of the total square footage. If your mortgage interest was \$10,000 for the year, you can itemize that on you personal return (provided you have over \$12,200 if filing single), but I don’t think you can then deduct \$2,000 (20%) from your rental income on schedule E.

This year, I noticed TurboTax automatically calculated the amounts from my Form 1098 (mortgage) for the rental portion and the personal portion, so I am not 100% sure, but careful not to double-dip, so to speak, in tax-deductions.

My accountant splits the mortgage interest deduction into the portion for my personal use of the home, which goes on the itemized deductions, and the portion for the rental, which goes on my schedule E. I’m not double dipping on this.

Now I’m starting to rethink the deduction for common spaces. It seems like everyone here either doesn’t use common areas in the calculation of rental percentage or they or apply a much smaller proportion of the common areas toward the rental. I’ve done taxes twice since being an AirBnB host and both times he has agreed with splitting up the use of the common areas evenly between the guests and myself since we all have equal access.