Jill O Posted March 14, 2017 Report Share Posted March 14, 2017 I am filling out Schedule E for a client whose girlfriend moved into his house in September (He lived in the home all year and owns it). I am struggling to figure out how to fill out the boxes 2A for Fair Rental Use Days and Personal Use Days. I understand the "Vacation Home" rules apply. My first thought was 122 days for Fair Rental Use and 366 for Personal Use Or should it be 122 days for Fair Rental Use and 122 days for Personal Use because he only started "renting" his house on 9/1/16? Or should the Fair Use + Personal Use=366? (in which case how do I allocate the days?) Can anyone help? He says they share the space 50/50 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 14, 2017 Report Share Posted March 14, 2017 It might be helpful for us to know which software package are you using. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 14, 2017 Report Share Posted March 14, 2017 I think your approach is wrong and "home vacation" or personal use doesn't have anything to do with the situation. Do they have more renters or just the girlfriend? Let's say that you own and lived in your house the whole year. On July 1st, you started renting half of your house and don't charge for water. So you open Sch E and enter the amount of rent collected. Then you see how much you paid for water between July 1st, and Dec 31 and you enter as expense half of it to Sch E. Depreciation starts on July 1 on half of the cost or FMV on July 1st of the structure (whichever is lower). Let's say that you fixed the toilet in your room in Sept and spent $100, since the toilet is now working, you can flush the receipt. On the other hand if you repaired the toilet on the rented room in October and spent $80, save the receipt and enter that expense on Sch E. RE taxes and Mortgage interest will be 75% on Sch A and 25% on sch E. Let's say that your keys were compromised and you replaced all the locks in December and spent $500, then you have $250 expenses on Sch E or you can depreciate them on 27.5 years. You really have to think about this situation because if the girlfriend is the only renter, she just want to help the BF and she is not paying rent but paying for rent and other "services" or physical security. Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 14, 2017 Author Report Share Posted March 14, 2017 I am using the ATX 1040 package. The guy and his girlfriend are the only 2 people in the household. From my understanding, the IRS considers any payment to the homeowner rent regardless of their interpersonal situation. They are "sharing expenses" -- that is, half the utilities, property taxes and other household expenses. The house is paid for. Even if she is only paying for utilities I believe the IRS considers that "rent". I understand all the allocation of expenses, however I'm not clear on whether I enter all the expenses for the year and let the program allocate them or enter the expenses for the time frame she lived there. Can someone explain line 2A? Can it be 122 Rental and 366 personal? The program calculates differently depending on how I enter it. Also, I'm wondering about the "Rental Use percentage for property used partially for personal use only" -- in this situation do I enter 50%? I assume most of the people on this board are using ATX? I appreciate any help you can offer. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 14, 2017 Report Share Posted March 14, 2017 Is she renting a room in his house, half his house, what? Or, is she his girlfriend who moved in with him and is sharing expenses? I'm sure there's a joke in there someplace about personal use, but I won't go there. 5 Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 14, 2017 Author Report Share Posted March 14, 2017 They are sharing the whole house Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 14, 2017 Author Report Share Posted March 14, 2017 He figured out what the expenses of the house were for the year (property taxes, insurance, utilities, household supplies) and came up with a dollar figure and divided it by 2. They are "living together". I told him he could make this all much simpler for me by getting married but he did not like that idea.... Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted March 14, 2017 Report Share Posted March 14, 2017 This is in now way a rental situation. Even Stevie Wonder can see this one. Trying to skew the rules to reduce tax will not fly if ever looked at by the IRS. 4 Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 15, 2017 Report Share Posted March 15, 2017 Jack, maybe the tax payers don't want to skew the rules but (Maybe) the tax preparer is suggesting to report this as rental income. I said on my original post that if only the girl friend lived there... to be careful. I amended a tax return a couple of years ago because the preparer included the whole payments received by the girlfriend from her boyfriend as rental income and that included money for food. They lived in an apartment. To me, I don't see a rental situation here. What if I live in the Pacun Towers, around the statue of libety, which costs millions of dollars in rent and I have my girlfriend live there rent free... Will I have to file a gift tax return? Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted March 15, 2017 Report Share Posted March 15, 2017 4 minutes ago, Pacun said: Jack, maybe the tax payers don't want to skew the rules but (Maybe) the tax preparer is suggesting to report this as rental income. I said on my original post that if only the girl friend lived there... to be careful. I amended a tax return a couple of years ago because the preparer included the whole payments received by the girlfriend from her boyfriend as rental income and that included money for food. They lived in an apartment. To me, I don't see a rental situation here. What if I live in the Pacun Towers, around the statue of libety, which costs millions of dollars in rent and I have my girlfriend live there rent free... Will I have to file a gift tax return? Should I charge my wife rent for living in my house? 5 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 15, 2017 Report Share Posted March 15, 2017 Facts and circumstances matter, and Lion was on track with that. If someone is renting out part of a duplex or a room(s) and has access and use of common areas, then that is a rental situation. The girlfriend moving in and sharing the bedroom and all the rooms and contributing for groceries and other cost of running the household, well they are just living together and I wouldn't view that as him renting part of the house to her. If that is the case, then I agree with Jack, they are living together and no way that is a rental situation. Jill O, yes, most here use the ATX program, and our members probably know why I asked the question. We frequently have members of the public come on and ask for free advice, and we won't answer those, so I wanted to make sure you weren't asking for a "friend." 3 Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 15, 2017 Author Report Share Posted March 15, 2017 You all really have me confused now. Are you suggesting that "living together" has no tax implications? If you are married it is clear that it is not a rental situation. If you are not married and the taxpayer owns the home it seems to me this is a rental situation (and I think the IRS agrees). I appreciate all your input on the question of whether this is a rental situation, but... No one has answered my real question here which is how do I fill in box 2A! Or do I not fill it in at all? And by the way, I'm not trying to show a loss, I'm looking to claim the income and write off as much as (legally) possible to the extent of the rent (thus, vacation home rules!). If I was doing this return by hand I wouldn't have this question because I kind of know what the numbers should be, but the ATX software calculates using those Personal/Fair Rental numbers (and if I don't put them in I get an error message) as well as the number entered for "Rental Use percentage for property used partially for personal use only" . As ATX Gurus, would you help me figure out the software issue and not so much the tax issue. But I am also now curious, are some of you suggesting he doesn't need to claim the money as rent? She is writing him a check every month.... I appreciate your input... Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 15, 2017 Report Share Posted March 15, 2017 Cohabitating and sharing expenses is not the same as rental activity that someone engages in as an income-producing activity for profit. We'd help you with the input, but instead we are trying to keep you from making a mistake. 7 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 15, 2017 Report Share Posted March 15, 2017 And if you really hate my answer directly above and still insist that you are correct and the rest of us are wrong... And if you say that boyfriend isn't engaged in this rental for profit and still insist on reporting this, then I'd suggest that you look at Pub 527 for Residential Rentals under the heading "Not Rented for Profit" where it instructs how to report these kind of rental activities. Hint - these don't go on Sch E and have nothing to do with vacation home rules, but I still think BF is NOT "renting" anything! Link to the Pub 527 Quote Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Where to report. Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. If you are filing Form 1040 and you itemize your deductions, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040). Claim your other rental expenses, subject to the rules explained in chapter 1 of Pub. 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. BTW, "guru" is assigned by the forum software based on the number of posts by members and has nothing to do with rating whether those answers are good or bad. 1 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted March 15, 2017 Report Share Posted March 15, 2017 The first thing I would ask is how much is he charging her? Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 15, 2017 Report Share Posted March 15, 2017 Hmm my college kid home for summer, I will charge him rent and get to deduct part of my house and depreciation, sweet. If they break up does the girlfriend get to stay there and share his bedroom anymore? Is there a lease? Is there a profit motive? 4 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 15, 2017 Report Share Posted March 15, 2017 Good point, Michael. If he figured the cost, and then assigned her half of the cost, there should be no profit. Therefore, there doesn't seem to be a profit motive in this case. 1 Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 15, 2017 Author Report Share Posted March 15, 2017 So no profit motive, no income? Or no profit motive line 21 on the 1040? What she is paying is well below market rate. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 15, 2017 Report Share Posted March 15, 2017 Jill. then file the way you think it is correct and then file a gift tax form because he is getting a gift by paying less than FMV. You don't seem to accept the consensus on this site. Michaelmars made excellent observations: "If they break up does the girlfriend get to stay there and share his bedroom anymore? Is there a lease? Is there a profit motive?"... but you seem you want to do it the way you want. Lack of profit motive by itself doesn't exclude income from taxing but with the other circumstances of your clients, I agree that you don't have a reportable rent, but again, we only suggest since they are your clients. Quote Link to comment Share on other sites More sharing options...
Jill O Posted March 15, 2017 Author Report Share Posted March 15, 2017 I appreciate all the input from everyone on this board. I am not a CPA or an EA and only do a small number of tax returns each year, all 1040. You can't get anyone on the phone at the IRS and even if you do get someone on the phone all they do is quote the publication which is vague at best. The law is complicated and not clear and I just want to get it right. Your advice has been very helpful. Thank you. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 15, 2017 Report Share Posted March 15, 2017 Jill, I think that most of us are looking at this as not that he is charging her rent, but that they are sharing expenses. If he had said I own the house, so you pay the electric and the cable bill as your share of the expenses, would you consider that as charging her rent? Basically, it seems to me that he is just saying you pay your part of the expenses by giving me a check, and I will write all of the checks to pay the bills since everything is in my name. But I agree with Pacun - you are closer to the situation than any of us, and if your feeling is that it is really a landlord/tenant situation then by all means report the income. But I think if I did that I would report it on line 21, and only deduct the expenses he can normally deduct on Schedule A. 4 Quote Link to comment Share on other sites More sharing options...
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