Taxes with house hacking

[Jarrod Ochsenbein]

How do you claim taxes on a primary house that you house hack?  

My investment properties are easy to claim taxes on since they are 100% investments.

Do you subtract the room square footage you live in and claim the rest as investment?

[Jarrod Ochsenbein]

Bonus Depreciation? Do you take it somehow on a house hack?  

[Bill Hampton]

@Jarrod Ochsenbein

You have to divide the expenses using rental square feet vs. personal square feet or rental bedrooms vs. personal bedrooms. 

You also have to factor rental days vs. personal use days.

This is very complicated. You shouldn't try to do this on your own. 

I recommend finding an accountant who specializes in real estate taxation and tax planning.

You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

There are over 20 real estate accountants on this site. Reach out to a few and see who you like.

You can also ask members of your local real estate investors association for real estate accountant recommendations.

Good luck.

[Jarrod Ochsenbein]

Thanks Bill -  I have a CPA and did fire off an email to him. I just was curious what the BP community had to say. I figured it was something divided like that. 

   Again, your time and response is very much appreciated.

   Jarrod

[Sean O'Keefe]

Quote from @Jarrod Ochsenbein:

Bonus Depreciation? Do you take it somehow on a house hack?  

If this isn't a separate dwelling unit you can't take losses from the rooms / space you are renting and use them to offset non-passive income (Section 280A of the tax code)

Rental expenses are limited to the amount of your rental income and the balance of rental expenses is carried forward. As a result, there may be no point in taking bonus depreciation if the goal is to offset non-passive income with rental losses. 

[Jarrod Ochsenbein]

Thanks Sean.  Would it be possible to buy the house as a primary and then in year two claim bonus depreciation if I moved out and had it as a rent by room house?

[Basit Siddiqi]

When you house-hack, you have a property that is both a personal residence and an investment property.

As such, certain costs, such as real estate taxes, mortgage interest, snow removal, insurance, etc have to be prorated.

There are other costs that, if directly made to the investment property section, can be directly deducted.

[Ashish Acharya]

When house hacking, you need to allocate expenses and income based on the portion of your home used for rental purposes versus personal use. Start by calculating the percentage of your rented home, typically based on square footage.

You can deduct expenses like mortgage interest, property taxes, utilities, and repairs proportional to the rental space. The rental income you earn should be reported on your tax return, and these expenses can help offset that income. 

The portion of the home you live in personally isn’t deductible as an investment. However, you can still claim the mortgage interest and property taxes for your personal use if you itemize deductions. 

Also, explore cost segregation on the house hack portion so you can harness the loss or get the deduction.