Author Topic: Renting out part of your house  (Read 923 times)

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Renting out part of your house
« on: April 29, 2016, 08:12:21 AM »
If I were to have a SFR and it had a full basement with a kitchen, bathroom, etc, and I were to rent it out, what would be the best way to minimize/simplify tax on the rent money? I would still be living upstairs and would still have a mortgage. I probably wouldn't have much income besides the rental receipts.

I'm thinking about a FIRE scenario where we get an expensive house in a HCOL but rent out part of it because it's so expensive. The house belongs to my grandmother who would like to keep it in the family but I would have to buy it from the estate because it's her main asset and she has too many descendants for me to be in the will.

The math would probably be something like $40k in mortgage (with a large down payment) and $30k in rent. And taxes, insurance, repairs, etc would be on top of that.

brooklynguy

  • Handlebar Stache
  • *****
  • Posts: 2207
  • Age: 39
Re: Renting out part of your house
« Reply #1 on: April 29, 2016, 10:20:56 AM »
The section of IRS Publication 257 entitled "Renting Part of Property" (starting on page 16) has a good, user-friendly description of the tax aspects of your proposal.  In a nutshell, you divide up the relevant expenses between the portion of the property you occupy and the portion that is rented out, and you can deduct the relevant expenses that are allocable to the rental portion.  This is what I do -- in my HCOL area, depreciation and mortgage interest alone offset the lion's share of the rental income.

Separately from taxes, you would want to look into whether it would be legal to rent out the basement of the SFR.  My house is a legal two-family residence.