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How do I prorate the expenses and depreciation for a rental room in my home?

Emma_Woodhouse

I purchased a house on April 22, so I have owned it for 254 days of the year. I rented out a single room in the house for 201 days. However, I did not use the room for personal use at any point during the 254 days, it was just sitting empty.

I understand that I use the percentage of square footage to prorate the expenses from the entire house. The room is 102 square feet and the house is 1173 square feet. So 102/1173 = 0.0870. I multiply the expenses by 8.7% to find the portion of expenses I can deduct from my rental income.

My question is: how do I report the days used since I only owned the property for part of the year? I never used the room for personal use, so for "Days Rented to Others" do I put 254 or 201? Likewise, for "Date Placed in Service," can I list April 22?

Under the depreciable assets tab, do I list "percentage of this asset used for business purposes" as 8.7%? or do I also have to prorate my expenses by 254 days out of 365 days?

Also, do I have to divide the depreciation of the real estate asset based on the square footage of the rented area? The cost basis of the entire home is $247,000. I entered the land value so it subtracts that, but do I also need to divide the cost basis of the home and land by 8.7 to find the cost basis of the rental portion?

Let me know if there is anything I can clarify. Thanks for the help!

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Accepted answers

GeorgeM

Hello Emma_Woodhouse:

I need to correct my previous post with regard to the question in our software that relates to the “percentage of this asset [the room you are renting] used for business purposes.” You are correct in that it should be 8.7% and not 100%.

The cost basis for your home and the cost basis for the land should be the total amount for each without any reduction based on the room you are renting. Our software will calculate the applicable depreciation expense based on percentage of your home that you are renting.

To check your depreciation expense, you can review your Depreciation Schedule, and specifically the column on that schedule that relates to the Asset Cost and Depreciation Basis. The Asset Cost (the cost basis for your home less the cost basis for the land) should be the top amount in that column, and below that amount should be the Depreciation Basis. The Depreciation Basis should be 8.7% of the Asset Cost amount.

Assuming you have advanced to the Summary section in our software, to review your federal tax return including the Depreciation Schedule, click on the Summary tab. Scroll down to the section “View Federal Tax Return,” and click the View tab. Thereafter, a pdf copy of your federal tax return should download to your computer. The Depreciation Schedule should be near the end of your federal tax return.

All comments

GeorgeM

Hello Emma_Woodhouse:

The date you enter will depend on when you made the room available for rent. If you made it available for rent on April 22, 2025, the day you purchased the property, then use April 22nd as your “date placed in service” even though you did not have a tenant until about two months after your purchase date. Thus, the critical date is the date you made the room available for rent, not the date you eventually found a suitable tenant.

With regard to proving when the room was made available for rent, some landlords in your situation will use copies of their advertisements or other types of postings that demonstrate when a room was available for rent. Arguably such proof could also include “word of mouth,” but in those circumstances you might have to rely on others to support your tax position in the event the IRS asked for proof.

Regarding the question where you are asked to enter the percentage of the room that is used for business purposes, because it appears the entire room is being rented, enter 100%. If you were to enter a lesser percentage, our software would adjust your depreciation expense to match your business use of the rented room. In the future, if you were to change the business use of the room to some amount less than 100%, then you would make the necessary adjustment in our software.

Regarding the cost basis of the property, and the value of the land, enter those amounts in full. Do not adjust, lower or higher, the cost basis of the property, or the land, based on the size of the rented room relative to your entire home. Our software will calculate your depreciation expense based on your cost basis for the property less the value of the land.

Regarding the more common expenses for your property, such as property taxes, utilities, mortgage interest, etc. you are correct in that you would allocate 8.7% of such expense to the rented room. However, to the extent you have an expense that relates solely to the rented room, such as new paint or replaced floor boards, then that entire cost would be entered into our software.

Lastly, we have a great article about renting a room in a home which you can find here https://community.freetaxusa.com/kb/articles/61-renting-out-a-room-or-part-of-your-house

Emma_Woodhouse

Thank you, George, the information is very helpful.

I have a bit of confusion still when it comes to the asset depreciation worksheet:

For the "percentage of asset used for business purposes," you suggest to put 100% "because it appears the entire room is being rented, enter 100%."

In the asset description, however I listed the asset as "single family residence." Then I entered the cost basis and land value for the entire house. Only 8.7 percent of the house is being rented out. I would think that "percentage of this asset used for business purposes" would be 8.7 percent, since that is the percentage of the house's square footage which is being rented.

In anther forum conversation, someone said to enter only the cost basis of the rented portion of the property:

Is my property a depreciable asset if I rent out rooms? — FreeTaxUSA Community | Tax Questions, Answers, and Help

Are you saying I should instead list the asset as just the room being rented out? Then would I enter the cost basis as 8.7% of the total cost (and same for land value)?

Thanks again.

GeorgeM

Emma_Woodhouse

https://community.freetaxusa.com/discussion/comment/7304#Comment_7304

Thanks for the clarification!