House Hacking Taxes Lesson Learned

[Dominic Franco]

TLDR: Lesson Learned: If you are buying a property to house hack and the unit you intend to move into is occupied with tenants and collecting rent after closing, then for tax purposes, it will be considered a short term rental. Unless when you moved in you were staying in the property for less than 14 days that calendar year. 

*I am not a CPA, this is not legal advice, just my experience filing taxes with my duplex in my state*

The first year of owning my duplex I put a good chunk of money into it so that I could justify a rent increase and have the rent cover the mortgage payment. After tracking all my expenses and income on my profit and loss spreadsheet, I was showing a total loss of $3,898.38 for the year. After sending in all my documentation to the CPA I used they sent me back a worksheet showing that I would be claiming a GAIN of $375.00. When I asked how I was claiming a gain with so many expenses I was given the explanation that 1. since it is a duplex I can only write off half the expenses since I live in the other side (fair enough I assumed that) and 2. since both sides were occupied, and I collected rent for 2 months on the side we chose to move into, it is considered a short term rental for tax filing since we lived in the property for more than 14 days. Because of those factors, somehow it went from a large loss to a gain. I am still unsure how but this is what I was told and it wasn't cheap for the explanation. 

This was just my experience filing taxes with my house hack the first year. If you had a similar situation but a different experience I'd love to hear it. Kind of disappointing considering what I thought I knew about the tax advantages of rental properties. 

-Dom