Entering roommate rental income (renting a room in a home)

[taxmo]

When someone rents a room to a roommate in their home, the Sch. E deductible rental expenses are supposed to be limited to the amount of rental income (and the unallowed excess deductions get carried forward). How do I make ProConnect do that?

Just to avoid incorrect answers, this is a 280A limit, and it's not the same thing as section 469 passive activity rules, so the correct answer is not to check the "not an active participant" box, etc. The unallowed loss is supposed to show up on the "Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home" as a "Carryover of Unallowed Expenses". And there are ordering rules that determine which deductions get phased out first if the losses exceed the income.

This is related to the personal use rules, so there should be a way to do this from the "Personal Use of Dwelling Unit (Including Vacation Home)" page, but nothing on there seems to correctly limit losses to the income for a roommate rental situation. 

[PhoebeRoberts]

I appreciate you knowing the presentation that you want! (And I agree with that presentation, for what it's worth.)

The Personal Use / Vacation Home section is what you want. You may have to judiciously override to get your desired presentation. This is one of those things where any input that produces the correct output is appropriate, as opposed to "plunk the number in the right box and the software will do the rest."

[PhoebeRoberts]

Here's the official guidance for that section: https://accountants.intuit.com/support/en-us/help-article/federal-taxes/enter-vacation-home-schedule...

Note that you'll want to enter 365 days personal use, and will need to override the percentage of business use based on a combination of days and square footage.

[taxmo]

I tried that, and it looks like entering personal use days only seems to reduce indirect expenses by that proportion. It doesn't do anything to limit the expenses to the amount of income.

Actually, if your personal use days are more than 10% of the rental days, then the software should limit your deductible expenses to the amount of income (similar to what it should do for roommate rentals)... but it doesn't seem to even do that!  That's an even more common scenario.  Unless I'm missing something, that seems like a serious issue with the software if it isn't doing that. 

[BobKamman]

You lost me at 480A.  Whazzat?

[taxmo]

480A 280A has various rules that limit deductions for rentals that are used for personal use by the owner (either part of the year, or part of the dwelling).  One of the things the rules do is when you rent out a room in your home (not a separate dwelling, but just a room), then your deductible losses are limited to the amount of rental income. 

This tax court case explains it well (ignore the unrelated part about his home office): https://law.justia.com/cases/federal/appellate-courts/F3/76/388/519498/

[BobKamman]

So,  maybe you mean 280A?

[taxmo]

Goodness... yeah, oops.  I'll edit it.

[PhoebeRoberts]

If you screenshot your Excel file that shows what the underlying numbers are, and what the expected output is, I can send you back a screenshot of the input that arrives at that output.

As I said, this is a situation where you may need to judiciously override.

[BobKamman]

It has been a while since I had a client who claimed to be renting to a roommate, but I usually managed to talk them out of it.  It's not really rent, they are just sharing utility expenses (and other nondeductible items).  

And make sure there is profit motive.  My granddaughters attend a public school that offers instruction half a day in Mandarin.  The teachers are from China, on J1 visas, and parents are asked by the school district if they have a place for them to stay.  So my son and his wife collected some "rent" for a year.  It's all "other income," and the expenses that used to be allowed on Schedule A as miscellaneous deductions are, of course, gone.  

[itonewbie]

I recall there was a revenue ruling on subletting and, if I remember it right, it was determined that subletting generally lacks a profit motive and the objective is primarily to reduce a loss.  As a result, §183 would be the governing section for expense deduction, which doesn't help at all under TCJA.