If you only rent a portion of your home, then all expenses relating to the home must be adjusted based on the square footage of the rental space. The rental income and expenses should be reported on Schedule E.
What if the space is separate from the rest of my house?
If the rental portion of your home contains all basic needs such as sleeping space, toilet, and cooking facilities then it is considered a dwelling unit.
Example: Your property contains a loft apartment. This apartment has its own bathroom, cooking, and sleeping arrangements. This portion is considered a separate dwelling unit and you will use the dwelling unit calculations above to determine your business use of this portion of the property.
In order to prorate your expenses, your rental expenses will be no more than your total expenses multiplied by a fraction, the denominator of which is the total number of days the dwelling unit is used(during the taxable year) and the numerator of which is the total number of days actually rented at a fair rental price.
Example: 55 days rented divided by 365 days total = 15.06% business use
Only your rental expenses may be deducted on Schedule E. Some of your personal expenses may be deductible on Schedule A if you itemize your deductions.
What if I do not use the room for personal use at all?
If you have less than 14 days personal use of the room that is available for rental for the full year, and it does not have all the amenities required to be considered a separate dwelling unit, then it is not considered a dwelling unit. Instead of using the calculation above to prorate your expenses, prorate based on square footage instead.
Example: Your total home square footage is 1200 square feet. You rent out a portion of the home totaling 250 square feet. You do not have any personal use of the rented portion during the year, so your percentage will be: 250 divided by 1200 = 20.8% business use.
What if I use the room for personal use, but rent it out sometimes?
If you have personal use of the rental space for the greater of more than 14 days or 10% of the total days rented at fair price, you must follow both methods above to prorate expenses. First, use the percentage of square footage to prorate the expenses from the entire house.
Then, divide your days the individual room was rented by the total number of days in the year to find your business use of that room.
Last, multiply the percentage of business use by the prorated home expenses.
For additional information, see: