depreciation when room rented 3 days of week

Right, square footage of room divided by square footage of entire house. However, the rule pertaining to number of days rented does not apply (after reading the other posts I figure this is the gist of the arguments) because the room will have their stuff in it for all 7 days of the week, will not be available for the landlord or anyone else to use, and just the person's physical presence is in the room 3 days a week.

Does this mean rental income minus expenses (excluding depreciation) should be greater than zero? Or rental income minus expenses (including depreciation) should be greater than zero. For people renting their entire house these days, if their house was purchased during the boom, then using the second way they still have a loss. But depreciation has to be recaptured, so it's as if it didn't exist.

Well, we still disagree on that. To reiterate, it's not about the

*landlord's* use of the room, it's about the *tenant's* use of the same bathroom and kitchen as the landlord -- that's what makes the Sec. 280A limitations apply, just as D. Stussy indicated earlier.

Unless the tenant brings his own chamber pot along and empties it off the property, the rental clearly includes use of a dwelling unit (kitchen/toilet/sleeping) which is also used by the landlord as a home.

Under Sec. 280A, this means expenses will be limited to rental income. For a typical property in San Francisco and the $5K rental you mentioned, I suspect that a pro-rated amount of the mortgage/property tax deduction will get used up on Schedule E, maybe a little of the insurance and utilities (pro-rated) will be allowed, and probably nothing allowed for depreciation (the latter two unallowed amounts carried forward but still probably not allowed in a future year either).

Net result is all the rental income is taxable with no significant rental expenses to offset it (since mortgage/property tax would have gone on Schedule A anyway). Compare this to the situation of a renter who sublets a room (roommate expense sharing), where all the taxable income instead passes through to the landlord and it's a net wash to the primary tenant. The difference is, the landlord who lives in a separate property gets to deduct *all* the expenses (but subject to his own passive loss limitations).

If you think about it, it's really no different than the limitation of Office In Home (OIH) deduction to the net profit from the corresponding business or trade on Form 8829. In both cases, you can't take part of your own home and start deducting personal expenses and depreciation in excess of your profit (after mort/proptax deduction), simply because you use it for a business activity. For that, you need to have a separate piece of business-use property. For the landlord, an in-law type unit with its own kitchen/bath and separate entrance would certainly qualify for that, which is why I asked you that question in the very beginning of this thread.

Of course, if you had one of those, you most likely wouldn't be renting it only three days/week.

-Mark Bole

I think I'm beginning to understand now: If the tenant pays, say, $300/week, then perhaps $250 is for the use of the private room (including occupancy for 3 days and storage for 7 days/week), and the other $50 is for the shared usage of kitchen and bathroom.

That's for the $50 part, and not the $250 part, right?

Or can't the rental be split that way?

Seth

I'd be careful about claiming a rental of storage space, because then the question arises, are you providing services related to the storage, such as security?

My understanding is no, a dwelling unit is a dwelling unit -- you can't separately rent out the components. (Unless, as mentioned in Pub 527, you are using the property as a "hotel, motel, inn, or similar establishment", in which case I suspect we would be talking about a Schedule C activity).

As a practical matter, I predict that in an audit, if your rental address is the same as your residence address, and you didn't move during the year, and you are trying to claim losses in excess of income, you are going to have problems.

-Mark Bole

How come you say nothing will be allowed for depreciation? Where on Schedule E form or instructions do they mention the section 280A limitations?

So should the owner just put all of the mortgage interest and property tax on Schedule A, and all of the rent income on Schedule E, with rental expenses being part of

Here is where they mention it:

Instructions for Schedule E, Form 1040, Line 2, note especially use of technical term "dwelling unit", which the IRS defines to include kitchen, toilet, and sleeping facilities:

"If you rented out a dwelling unit that you also used for personal purposes during the year, you may not be able to deduct all the expenses for the rental part. ?Dwelling unit? (unit) means a house, apartment, condominium, or similar property. [...]

"If you checked ?Yes? and rented the unit out for at least 15 days in

2009, you may not be able to deduct all your rental expenses. You can deduct all of the following expenses for the rental part on Schedule E.

• Mortgage interest. * Real estate taxes. * Casualty losses. * Other rental expenses not related to your use of the unit as a home, such as advertising expenses and rental agents' fees.

"If any income is left after deducting these expenses, you can deduct other expenses, including depreciation, up to the amount of remaining income. You can carry over to 2010 the amounts you cannot deduct. "

Almost. You should put the pro-rated part of mortgage interest and property tax on Sched. E, the remainder on Schedule A.

-Mark Bole

So then we come to my original question -- what is the value of depreciation? If the room is 20% of the entire house, is the depreciation 20% of the full value (where full value is if the entire house were rented), or 3/7 of 20%?

If the house is paid for, purchased long ago so that the property tax via prop 13 is very low, then there is still money left over for depreciation and the pro-rated condo and utility fees.

If the house were purchased recently, then the pro-rated mortgage interest and real estate taxes could easily be the entire $5000, or maybe more. What happens to the carried over depreciation and pro- rated condo fees? Well the instructions they can be used next year. But what if the entire house is sold next year? Then the carried over depreciation can be used to cancel out the 25% recapture tax, right? And what if the house is sold at a loss? Then can the carried over depreciation and pro-rated condo fees be used to produce negative income on line 1 of 1040? In an earlier post you said that the carryover may be lost forever -- and I don't understand that.

I gave my answer umpteen posts ago -- calculate full-time depreciation.

But only against the same personal-use-rental-income. If you don't have an increase in income, you will just accumulate more unused carryover every year. Even though not a passive activity, the carryover is treated similar.

I think you would simply not account for the depreciation that was not allowed in the first place.

No, I don't think so. As I said previously, just like with an OIH, using part of your home for business does not by itself generate net tax losses. (Allowing, of course, for the split of always-deductible mortgage interest and RE (real estate) tax between Schedule A and Scheds. C/E).

So, for example, if your pro-rated insurance and utilities were never allowed because they were in excess of the annual rental income (or OIH income) after mort/RE tax, then you never get to use them as a tax deduction. Depreciation that was never allowed is just that -- depreciation not allowed or allowable.

-Mark Bole