The Two Parts of House Hacking Taxes
House hacking splits your property into two portions: personal use and rental use. For a duplex with two identical units, it’s a clean 50/50 split. For a single-family home with rented rooms, you calculate the rental percentage based on square footage. Each expense must be allocated between these two uses for tax purposes.
Expense allocation for house hacking properties
| Expense | Personal Use Portion | Rental Use Portion |
|---|---|---|
| Mortgage interest | Schedule A (subject to SALT limits) | Schedule E (fully deductible) |
| Property taxes | Schedule A (subject to $10K SALT cap) | Schedule E (proportional amount) |
| Homeowner’s insurance | Not deductible (personal) | Schedule E (proportional amount) |
| Maintenance/repairs | Not deductible | Schedule E (100% of rental repairs) |
| Depreciation | Not deductible on personal portion | Schedule E (rental portion depreciable) |
| Utilities (if included in rent) | Not deductible (personal share) | Schedule E (rental share) |
How to Calculate Your Rental Percentage
For a duplex: each unit is typically 50% of the property, so 50% of shared expenses is deductible as rental. For a single-family home with rented rooms: rental percentage = rented square footage ÷ total livable square footage. If you rent 2 of 4 bedrooms in a 2,000 SF home with 1,200 SF of common area and 400 SF per bedroom: rental % = 800 SF ÷ 2,000 SF = 40%.
The rental portion of your property is depreciable over 27.5 years. On a $350,000 duplex where 50% is rental ($175,000 structural value, excluding land), you can deduct $6,364/year ($175,000 ÷ 27.5) in depreciation — often enough to create a tax loss on paper even when cash flow is positive.
The $25,000 Passive Activity Loss Allowance
If your rental activity generates a tax loss (possible with depreciation), you may be able to deduct up to $25,000 of that loss against your ordinary income if your MAGI is under $100,000 (phases out between $100K–$150K). This is called the $25,000 real estate exception to passive loss rules — a significant benefit for house hackers in moderate income ranges.
When You Sell: Partial Home Sale Exclusion
Single homeowners can exclude up to $250,000 in capital gains ($500,000 married) on a primary residence sale — but only for the owner-occupied portion. The rental portion of your house hack may be subject to capital gains tax and depreciation recapture (25% rate on depreciation taken). Work with a CPA before selling any house hack property to plan timing and minimize tax.
Recordkeeping Requirements for House Hackers
Maintain records for all rental income (bank statements showing deposits), all rental expenses (receipts and invoices), square footage calculations (floor plan or appraisal), depreciation schedules (created with your CPA), and lease agreements. Keep records for 7 years beyond the sale of the property in case of audit.
Calculate Your House Hack Cash Flow and Tax Position
Model rental income, expenses, and estimated depreciation deduction.