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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Hi, Lev. Im finally doing the 2012s and I have another question.

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Hi, Lev. I'm finally doing the 2012s and I have another question. I know you said a property listed on on schedule need not be owned by the one declaring income. As I mentioned, I am renting my apartment in NYC (for $3600/month), and rent our extra bedroom to others on airbnb which resulted in $3,670 in "Rents" on my 2012 1099-MISC. Since I don't own it, I have no right deduct my own rent as an expense, right? That would put the return all out of whack ($3600 x 12 = $43,200 expenses minus $3,670 in income would = $39,530 in expenses for a property I don't own.) Should I just declare the income and leave it at that? My real expenses regarding renting out to guests only amount to about $250-$300. Thank you!
Submitted: 11 months ago.
Category: Tax
Expert:  taxmanrog replied 11 months ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

It appears that Lev is not online, so if I may, I will assist you.

 

When generating any kind of income, you are allowed to deduct all "ordinary and necessary" expenses associated with the income generating activity. So, since you had to rent the apartment in order to have space to rent out to someone, you are entitled to allocate a portion of the rent to the $3,670 that you received.

 

A good method for allocating rent is based on square footage. If the entire apartment is 1,500 square feet, and you rent an 10 x 10 bedroom, you are subleasing 100 square feet of your 1,500 square feet unit. you could then take 1/15 of the $43,200 rent that you paid and allocate it to the income you received. This would be done on Schedule E. Now, if there were certain amenities in the apartment that your sub-lessor was not able to use, such as a Jacuzzi tub in the master bedroom or the like, you would have to adjust the rent allocation accordingly.

 

Does your sub-lessor pay any of the utilities? If not, you could also allocate part of the utilities to the income you received as well.

 

I hope this has answered your question! If you have any more, please feel free to ask! If you have found my answer helpful, please rate me highly. I would appreciate it!

 

Again, thanks and have a great week!

 

Roger

Customer: replied 11 months ago.

Hi. Thank you for your response. I have a followup though. Using your explanation, I would generate a "loss" for my rental property which I don't own, which would make no sense and be unfair in a way. I think I realized the crucial piece. I didn't tell you the whole story. The room is about 140 sq ft and the apartment is about 800 sq ft. This equals 17.5% of the space. I only rented out this room for 25 days out of 365. That would equal 6.85% of the year. Shouldn't my math then be:


 


3600 (monthly rent) x 12 (months)= $43,200 (annual rent), times 6.85% (% of year occupied by airbnb renter) = $2,959.20 (total apt rent for time airbnb guests occupied the room), times 17.5% (% of apt used by room) = $517.86 deduction for 2012?


 


Please tell me if my logic holds. Thank you!!


 


Best,


 


Suzanne

Customer: replied 11 months ago.

Additionally, if my earlier thoughts from this morning were correct, on what line of the Schedule E (using Turbo Tax) do I place the $517.86 rental deduction? None of the line titles on the Schedule E seems to apply to a rental deduction such as this. Would it be line 19, "Other (list) ________"? Thank you.


 


Suzanne

Expert:  Lev replied 11 months ago.
Hi Suzanne and welcome to our site!
Thank you for asking additional question and appreciate for trusting me.
Many thanks to Roger who covered for me while I was away.

As it was mentioned above - all ordinary and necessary expenses associated with the income generating rental activity may be deducted.
The issue is - because these are not direct expenses - but expenses partially related to your rental income and partially personal - - you need to prorate such expenses - and only part related to your rental is deductible.
Because you do not own the property - you may not deduct depreciation - however all other expenses for instance your rental payments and utilities are deductible.
Your calculations are correct - you rent 17.5% of the space and your are renting 6.85% of total days. So your rent payments are deducted for $518 - you need to round the amount to whole dollars.
On the schedule E - you report that deduction on line 19 as Other expenses and will attach a note with explanation of your calculations.
Similarly - you may deduct your utility bills - use same proportion on line 17.
Customer: replied 11 months ago.

Thanks. The other guy was great, but I missed you. ;)


 


Ok. What do you suggest I write on line 19? Do I say "personal rent expenses" and then write out the whole equation as I wrote it to you, or is that too detailed? I'm not sure Turbo Tax has space for a 3 line explanation. Thank you.


 


 


 

Expert:  Lev replied 11 months ago.

As I mentioned above - you may not deduct personal expenses - but may only deduct expenses related to the income generating rental activity.

As you prorated your expenses - that portion is not personal so writing "personal rent expenses" would not be correct.

I would write "portion of rent related to rental income"

If there is no space - just leave as above - and keep your calculations as supporting document with other tax related papers.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
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