House Hacking Allowable Tax Deductions PSA

[David Y M.]

I went down a rabbit hole after putting up a post about tax deductions for a SFH, and I realized that many of us have the wrong idea about house hacking and allowable deductions. This is simply a PSA on the misinformation out there.

Might even contact BP because misinformation is in their blogs -

• https://www.biggerpockets.com/blog/2016-02-21-tax-implications-house-hacking
• https://www.biggerpockets.com/member-blogs/10395/68894-tax-deductions-for-house-hackers

The following is a compilation of all the major topics of discussions within the original thread. BUT - if there is some sort of exception to these rules please let me know. I just find it hard to believe that BP would have these blogs still up without anybody raising any alarms.

OG post if you want a good laugh: https://www.biggerpockets.com/forums/51/topics/865344-tax-schedule-e-questions-for-active-participation-loss?highlight_post=5078038&page=1#p5078038

If you are house hacking a single family home it is considered a "Business Use of Your Home." This means you can't deduct business expenses for any part of your home that you use both for personal and business purposes. Meaning if you want to expense furniture/appliances for your roommates to use, you cannot deduct it.

In other words you cannot expense items directly allocable to shared areas - not even a proportional amount.

Link to IRS Pub 509: https://www.irs.gov/taxtopics/tc509

Depreciation Allocation also seems to be a hotly debated issue and seems like there are a variety of ways to calculate it, but it seems that the above also applies. Per discussions with several accountants it seems like you can only depreciate your rented space.

You probably won't get away with depreciating shared spaces - therefore if you rent 3/4 rooms your depreciation allocation is probably too high if you used 75%. It should probably be around half of that.

You cannot take a loss on a house hack - even if you qualify for the $25k allowable Active Participation Passive Activity Losses. Then again it would be hard even claiming a loss given the limitations on expenses and deductions.

Deductions allowed cannot exceed the excess of gross income derived from such use for the taxable year

Link to IRC 280A: Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc. https://www.law.cornell.edu/uscode/text/26/280A