All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Pioneer
Posts: 1
Registered: ‎11-30-2017

Own property with brother where I "rent" apartment

My brother and I own a 2 apartment double property together. I am taking the on the tax responsibilities solely. I currently live there with a tenant. We both pay fair market rent. Rent checks go into a co-owned bank account with brother.  I do not plan to live there permanently, but may for a few years. How should I handle this? Do I treat both apartments as rental units? 

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Tax Pro
Posts: 5,777
Registered: ‎02-23-2016

Re: Own property with brother where I "rent" apartment

Hi mdfthr,

 

 

Welcome to the H&R Block community.

 

No, you do not count both apartments as rentals.  You are an owner based on the information you provided, so the apartment that you are living in is your primary residence, not a rental unit.

 

In order to report this type of a rental, we have to do some figuring.  f the tenant rents 1/2 of the square footage of the property then you would have to figure your deductible indirect expenses for Schedule E by taking the total of each indirect expense and then multiplying by 50%.  So if the total electric bill is $250 you can deduct $125.

 

Depreciation on the house can be figured by determining the basis for the entire property and then multiplying by your rental percentage.  If part of the property is land and you don't rent any of the land to the tenant for their exclusive use then you have to subtract your basis in the land from your total basis in the property first.  Then multiply by your rental percentage.  So let's stick with renting 50% of the property as in the first example.  Let's say your basis in the entire property is $500,000 and your basis in the land is $50,000.  If you subtract your basis in the land from your basis in the entire property you've got $450,000.  Next, multiply by 50% since only 50% of the house is a rental.  Your depreciable basis is $225,000.

 

Direct expenses are generally deductible in full.  An example of a direct expense would be a repair specific to the tenants rental space.

 

Note that although I figured the rental percentage in the examples based on square footage, you can instead go by a ratio of how many rooms are in each of the rental area and the rest of the house if the rooms are pretty much all the same size.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)