Taxes for Rent by the Room House Hack (Can I take a PAL?)

[Brendan Simpkins]

Hi All,

I purchased my first house hack last May. It's a 3BR house and I rent out the 2 spare bedrooms. I understand for tax purposes that I can only take two-thirds of the expenses related to the house to offset the rental income. After this adjustment, the expenses are still greater than the rental income (it's producing a loss).

What I'm unclear on is if I can apply the loss as a Passive Activity Loss deduction against my W-2 income (I'm under the MAGI limit). I know I would be able to do this for a standard rental property. However, my CPA is telling me that since I live in the house, it doesn't qualify for this deduction. 

Doesn't seem right to me, but I can't find any definitive information anywhere else online. Any insight would be greatly appreciated!     

[Ryan Thomson]

Hmmm. Maybe ask investors in your area who they are using for their CPAs. Then ask one of those CPAs for a second opinion. 

If you do not qualify as a real estate professional I don't think you can deduct losses against your w-2 income. I believe you can carry those loses forward to next year though. 

I'll DM you a blog I did on other great tax strategies I've used for my house hacks in Colorado Springs. 

[Sonny Christopher]

@Brendan Simpkins I am local to Nashville and happy to refer you to the CPA I use along with a couple others in town! 

My 2 cents would be that since it is your personal property that your CPA is right but im far from a tax professional!

Sonny

[Sarah Brown]

I had this same conversation with my CPA.  Your CPA is correct.  I charge my BF rent to live in the house.  Since the house was already going to be a rental when we moved to the next, I decided to claim rent, depreciate it, and expenses.  

[Andreas Mueller]

Nothing to add to tax side. Just want to say great strategy! had 2 clients buy places to House Hack and rent by the room. Good on ya!