Author(s): David Grant
Mentor(s): Jon Lee, Robin Boneck
Institution SUU
Schedule E, of income tax return Form 1040, is used for reporting real estate income and loss. There is limited guidance from the IRS on how one should use Schedule E to report multiple single room rentals that are within the landlord’s own personal residence/home. More specifically, these single room rentals within one’s personally owned home, can exist in a single structure with shared areas, often being a kitchen, bathroom, exit/entrance, laundry room, common area, etc. Additionally, there are no available legal definitions for single room rentals and whether they are their own sperate dwelling unit apart from the rest of the structure. With applicable case law and the existence of circumstances above, we have concluded these single rooms included as part of one dwelling unit. This definition highlights a problem when filing out Schedule E because multiple single room rentals within one dwelling unit do not have separate addresses. There is no way to report separate rentals that exist with a single dwelling unit, on Schedule E. Even though the Internal Revenue Service (IRS) has provided some guidance on the depreciation of single room rentals, there is no specific guidance on how to apportion expenses between the personal and rental use of multiple rooms. If the IRS were to provide more guidance on how to account for single room rental, they would likely increase tax revenue. Also, investors would have more clarity on how to report this type of rental, increasing investment activity. Single room rentals are especially common amongst college roommates and those looking to purchase a first home. Providing clarity in this area would benefit both government and investors. Through review of all applicable case law, Internal Revenue Code, and related regulations, we will determine the implications of single room rentals as they relate to Schedule E, rental use limitations, prior personal use, vacation home rules, and all other intersecting rules. Additionally, we will utilize extensive networks of experienced Certified Public Accountants to understand how they have previously handled this dilemma. The IRS is an important primary source that will be utilized in determining what good future procedure should be. While there may already be reporting methods used by some, we hope to provide more clarity in this area of reporting.