How to Deduct Depreciation When You Own a Home and Rent a Room

Save on taxes by deducting depreciation on a rented room.
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Depreciation refers to the wear and tear or obsolescence of a property. Depreciation allows you to recover the cost of certain property over the time you use it. The Internal Revenue Service allows tax payers to deduct depreciation from a taxpayer's taxable income under certain conditions. According to IRS Publication 527, you may deduct depreciation from your taxable income if you rent any part of your primary home and collect rental income.

Size

When you rent a room in your primary home, you can deduct the depreciation of the rented area from your taxable income. You can get the area of the room in square feet by measuring the room's length and width in feet and multiplying both figures. Dividing the area of the room by the total area of your house would give you the percentage of your property that can be claimed as tax-deductible depreciation. For example, a 10-foot-long, 20-foot-wide room would have a total area of 200 square feet. If your home has a total area of 1,000 square feet, the percentage of depreciation that you can claim is 20 percent (200 square feet divided by 1,000 square feet).

Land

The depreciation of real property applies only to structures built on the land. Depreciation is determined by spreading the value of the real property, excluding the value of the land over the usable life of the property. The cost of the building, including any improvements that you have performed on the rented part of the building, is the basis for computing the depreciation.

Tax Life

People have different definitions of the usable life of a property, which is why the IRS provides guidelines. Under the General Depreciation System, recovery periods for real property used in rental activities or residential rental property is 27.5 years. This means that the value of your home must be distributed over 27.5 years.

Computing Depreciation

The amount of deductible depreciation varies by taxpayer, but generally, you can compute the depreciation value of a property using the "straight-line" depreciation method. This allows you to spread the depreciation evenly over the life of the property, which in the case of a residential dwelling is 27.5 years. For example, if you have a property with a value of $165,000, your annual depreciation would be $6,000 (165,000 divided by 27.5 years). If these figures are applied to the 200-square-foot rental room inside a 1,000-square-foot home, the annual tax deductible part of your property would be $1,200 (20 percent multiplied by $6,000).

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