I recently bought a 3-bedroom single family house in Northern California
. My intent is to live in one room and rent out the other two to cover my mortgage payment/other expenses, hold the property
for a few years, and then sell the property to hopefully make a profit and take advantage of the $250k capital gain tax
My questions are as follows:
-Do I have to report rental income
/expenses for the other two rooms under this circumstance?
-Do I have to depreciate the portion of the house that I rent out?
-How would any of the above affect my ability to take the $250k capital gain tax exclusion (how would the gain/basis be then calculated?)
I would like to know how "Renting Part of Property" and "Not Rented for profit" of IRS
publication 527 apply. I'm confused because some people told me that if I am intending to rent it out to "share costs" there is no tax consequences since it is an "expense sharing arrangement" -- I don't have to report any income or expenses; I don't get any tax breaks for depreciation
and other costs; but I don't take a capital gain and depreciation recapture hit at the time of sale either, which would be the ideal case. I just want to keep it simple and not report income/depreciate if the rule allows.
I have some good understanding of basic individual
tax. Please include any source of any relevant publication. Thanks.