First House Hack Tax Planning

[Zac Kucharek]

I currently live in a Duplex that we house hack, living in one unit and renting the other. This was purchased in December 2023 and I am trying to Tax plan for the coming year.

1. I have heard from others that you should learn and research tax if possible for your first property rather than hire CPA right off the bat as it should be less complex from strategy. Would you recommend hiring CPA for planning right off the bat for first property? I know that would be the easiest approach but wondering your thoughts.

2. I know many of the tax deduction in a House hack are 50% in a Duplex as half property is rental and half is residence. As I understand it 100% deduction on expenses that are soley related to the business or the rented unit, 50% deduction on expenses that relate to the general property as a whole ( mortgage interest, insurance premiums, common area repair expenses). And 0% deduction on expenses related to the live in unit. Is that generally correct?

3. I have saved and organized electronically all receipts for expenses as well as improvements on the property. How do you deduct "improvements" such as a room remodel in the rented unit. Is that something you have to depreciate over time?

4. Generally are there any specific strategies or deductions for house hacks that you would recommend from experience?

5. Finally, if I depreciate the value over 27.5 years to deduct? Is that so cut to 50% as it is a house hack? Secondly, would I have to pay that back in depreciation recapture upon sale? I'm sure there are strategies to mitigate that down the line when that time came such as a 1031 or something along that route?

Thank you in advance for your insight. Apologies for all the questions but figured it'd be more efficient all in one post.

[Sean O'Keefe]

Quote from @Zac Kucharek:

I currently live in a Duplex that we house hack, living in one unit and renting the other. This was purchased in December 2023 and I am trying to Tax plan for the coming year.

1. I have heard from others that you should learn and research tax if possible for your first property rather than hire CPA right off the bat as it should be less complex from strategy. Would you recommend hiring CPA for planning right off the bat for first property? I know that would be the easiest approach but wondering your thoughts.

2. I know many of the tax deduction in a House hack are 50% in a Duplex as half property is rental and half is residence. As I understand it 100% deduction on expenses that are soley related to the business or the rented unit, 50% deduction on expenses that relate to the general property as a whole ( mortgage interest, insurance premiums, common area repair expenses). And 0% deduction on expenses related to the live in unit. Is that generally correct?

3. I have saved and organized electronically all receipts for expenses as well as improvements on the property. How do you deduct "improvements" such as a room remodel in the rented unit. Is that something you have to depreciate over time?

4. Generally are there any specific strategies or deductions for house hacks that you would recommend from experience?

5. Finally, if I depreciate the value over 27.5 years to deduct? Is that so cut to 50% as it is a house hack? Secondly, would I have to pay that back in depreciation recapture upon sale? I'm sure there are strategies to mitigate that down the line when that time came such as a 1031 or something along that route?

Thank you in advance for your insight. Apologies for all the questions but figured it'd be more efficient all in one post.

Congrats on getting started! See my answers below:

1. Maybe. This really depends on the real estate investor, how much time they have, if they’re financially savvy, and if they can figure it out on their own without making mistakes that will cost you $$$ in the long run.
2. Yes, expenses on the Duplex expenses need to be prorated between the side you occupy and the side you rent out. To avoid any confusion, this is not the same thing as ( “home sharing”, or an “owner-occupied rental.”)
3. Improvements generally need to be depreciated over 15 years, note I said generally, depending on the nature of the improvement and how long the IRS standard depreciation period is for the cost and size of expenses.
4. Strategies depend on a number of things including, but not limited to: type of property, your material participation, how long you plan to hold it, your goals. I don’t have a lot of these details so I can’t provide much help here
5. If it’s a long-term rental (27.5 years).

You can’t start depreciating the property until it is “Placed in service”. Since you bought it in close to the end of the 2023 tax year this is something that you will want to review.

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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.