Tax implications: If I rent two rooms in a 3bed SFH to roommates or Airbnb and live in one of the bedrooms. Scenarios: 1. i do this for 2 years and sell 2. I do this for 2 years. Then rent for 3 years and sell 3. I do this for an year. Live fully in 3 bedrooms for 2 years and then sell Would I qualify for 121 capital gain exclusion on the 100% of the gains after selling the home in all of these scenarios? Also, the rent I get from roommates and Airbnb, is that taxable as well? Reaching out to Tax experts on Blind.
As per my understanding, you would be paying income tax each year on the rental income. Once you sell the house, the house will be taxed based on it's sell value and not the rental income.
You should check with a tax lawyer ( not accountant) but it still counts as your primary residence since you lived there and therefore eligible for 121 cge. Again, check with a lawyer because IANAL.
Thanks. Yeah I've received confusing information from CPAs
As long as you live in the home it’s a primary home for tax purposes. When you rent out to tenants, make actual rent a very low proportion of what they pay. You only pay income tax on earned rental income, not pass through fees (mortgage interest, property tax, home insurance, maintenance, etc). Make sure you keep records of what is the total actual earned rent in case you get audited. Don’t itemize and take mortgage interest or property tax deduction on your personal tax return. Then finally, you can also use deductions like depreciation. You most likely will pay $0 in income tax, and may even offset your personal tax bill.
This aligns with my own understanding of this type of situation.
Got it but that’s only if you live there...if you’re not living there I believe it’s all taxed as income.
Thanks. Does that mean when I sell the home and have lived in it for 2 years despite Airbnb or renting rooms I qualify for gains exclusion of $250/$500k?
Are you on a visa? Is airbnb income allowed?
Yes I'm on visa
It doesn’t work like this . I confirmed from my cpa. If you rent our room in your house then u can only take proportion of 250/500k exclusion . Say u rent out half of the house then u can only take 125/250k exclusion.
Your CPA is wrong..
Can you please explain why ?. I have multiple houses in Bay Area so I had spent lot of time and money finding it
Not an expert but a landlord coz I couldn’t sell my house in Florida. It’s all income to the IRS so at least expect some level of rape from them.