House hacking primary residence tax implications

[Frank Visaggio]

We bought a rambler where we got a permit to build a 2nd kitchen on the first floor/basement.

We are plant to rent it to a family member for a below market rate but even if we rented it for a market rate the rent would only cover 60-70% of the mortage.

If we had them sign lease would this income count as a loss because it’s less than the mortgage and expenses? We also aren’t opposed to not charging them rent as we never intended for this property to be an “investment”. 

My next step is to reach out to a local tax preparation professional in Utah as I always did TurboTax because my income and investments were all in equities and pretty simple.

Also I don’t care about my risk for this family member regarding them not signing a lease they have done a ton for me. I was just thinking in the incredibly unlikely situation I had a lawsuit that required me to sell this property they could be locked into a below market lease for 2 years. (this idea I heard on a podcast in the 100s)

edit: also has not confident in the forum I posted this in. If a different one was more appropriate please let me know. 

[Rob Hakes]

@Frank Visaggio

We have been renting out our downstairs for a while now.  If you do claim the income on your taxes then a good accountant will help you figure out the depreciation of that portion of the house (ususally as a percentage) and you can also right off a portion of the expenses (insurance, utitlities, etc).

There are some implication if you plan on selling the house in the future as you will have you pay recapture on the portion of property that was depreciated if you sell for higher than you bought it for.

From my experience any good accountant with some real estate knowledge will just treat the income and expenses just like any other unit.