Paying yourself "rent" when house hacking

[Tina Opel]

I am house hacking a duplex and have been planning on paying my business the same amount of "rent" that any other tenant would be required to pay but I just thought of it that doing so might not be the best idea. My main thought behind doing so was that I could build up a reserve quicker to be able to buy a second property since I can't spend it on personal expenses, but if I do this will that increase my "rental income" and make it harder for me to claim a loss on the property. If it will then I'm probably better off saving up for my second property outside of my "business" so that I can claim a greater loss but still set aside for future purchases. In all of my research I haven't ever heard that legally you have to pay yourself rent and count it as income but I don't want to unknowingly do anything illegal and then have to pay for it later. Is there a best way of handling this? Your advice is greatly appreciated!

[Joe Splitrock]

@Tina Opel you need to sit down and talk to a tax accountant experienced in rental property. You do not want to pay yourself rent - that is not how it works. Your duplex is not 100% a rental property. Assuming both sides are equivalent, it is 50% in use as a rental property and 50% primary residence. That means you can only claim half your interest and taxes as a rental property deduction. You can only depreciate half the value. If utilities are shared, you can only claim half the expense. It is really like two separate properties in the eyes of the IRS. If you claim the entire property, that is tax fraud, which is why I suggested you sit down with a tax accountant.