Publication 527 |
2000 Tax Year |
Renting Part of Property
If you rent part of your property, you must divide certain expenses
between the part of the property used for rental purposes and the part
of the property used for personal purposes, as though you actually had
two separate pieces of property.
You can deduct the expenses related to the part of the property
used for rental purposes, such as home mortgage interest and real
estate taxes, as rental expenses. You can deduct the expenses for the
part of the property used for personal purposes, subject to certain
limitations, only if you itemize your deductions on Schedule A (Form
1040). You can also deduct as a rental expense a part of other
expenses that normally are nondeductible personal expenses, such as
expenses for electricity, or painting the outside of your house. You
cannot deduct any part of the cost of a single phone line even if your
tenants have unlimited use of it.
You do not have to divide the expenses that belong only to the
rental part of your property. For example, if you paint a room that
you rent, or if you pay premiums for liability insurance in connection
with renting a room in your home, your entire cost is a rental
expense. If you install a second phone line strictly for your tenant's
use, all of the cost of the second line is deductible as a rental
expense. You can deduct depreciation, discussed later, on the part of
the property used for rental purposes as well as on the furniture and
equipment you use for rental purposes.
How to divide expenses.
If an expense is for both rental use and personal use, such as
mortgage interest or heat for the entire house, you must divide the
expense between rental use and personal use. You can use any
reasonable method for dividing the expense. It may be reasonable to
divide the cost of some items (for example, water) based on the number
of people using them. However, the two most common methods for
dividing an expense are one based on the number of rooms in your home
and one based on the square footage of your home.
Example.
You rent a room in your house. The room is 12 x 15 feet, or
180 square feet. Your entire house has 1,800 square feet of floor
space. You can deduct as a rental expense 10% of any expense that must
be divided between rental use and personal use. If your heating bill
for the year for the entire house was $600, $60 ($600 x 10%) is
a rental expense. The balance, $540, is a personal expense that you
cannot deduct.
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