I live in a 3 bedroom condo in California and decided to rent out 2 of the bedrooms and live in one.

  • The mortgage is $1M and interest is $4000 per month
  • HOA is $600 per month
  • Property tax is $1000 per month
  • Rental income is $3000 per month

I know HOA, mortgage interest and property tax can all be used to deduct rental income. But in my case, the rental income is less than all those combined. Also, there is a $750,000 limit for mortgage interest deduction for owner occupied house according to the new tax law.

My question is, when I file tax for 2018, how much can I write off my income?

  • I'd just like to point out that split 3 ways, your costs are about $1867/month/person. It seems like you are only charging $1500/month/person. Why aren't you charging more or asking the bank for a better interest rate?
    – BlackThorn
    May 16, 2018 at 22:53
  • Is $1500/month market rent in your area? Also, when did you buy the property?
    – Hart CO
    May 16, 2018 at 23:49
  • the mortgage portion consists of two mortgages - 360K before the cutoff date, and 640K after the cutoff date. $1500/month is market rate in Bay Area
    – Manto
    May 18, 2018 at 0:01
  • That is interesting, I'm not sure exactly how the law will be interpreted for a situation like yours, if they would apply the cap first or ignore the cap since you're only itemizing a portion of it anyway due to rental expense. Likely worth getting the opinion of a CPA familiar with rentals in your area.
    – Hart CO
    May 18, 2018 at 0:21

1 Answer 1


Assuming you were under contract on the house prior to December 16, 2017 and closed prior to April 1, 2018, you are grandfathered in to the $1M limit, so no impact to you unless you're married filing separately.

Since you live there, you cannot claim rental losses (even if you didn't live there, likely no benefit due to AGI, unless you're a real estate professional). You will offset rental income by a percentage of the expenses you listed in addition to depreciation of the rented portion and other expenses like maintenance/repairs. The percentage used is based on how much of the unit is rented. Count 2/3 of any common rooms as rented, and all of any rooms exclusive to tenants as rented. It's acceptable to use room count or square footage in this calculation, likely you'll want to use square footage unless you have a lot of rooms that are exclusive to you (because your rent income is well below rental expenses, you want to minimize rented portion).

If we assume 2/3 is rented, you can use 1/3 of property tax and mortgage interest as itemized deductions. Using your example numbers you'd have $20,000 in itemized deductions.

On the rental side 2/3 of each expense, so:

  • Mortgage interest = $2,666
  • HOA = $400
  • Property tax = $666
  • Depreciation = $2020

That's $5,752 in monthly rental expenses (plus maintenance/repairs, insurance, etc.), which fully offsets $3,000/month in rental income leaving you with no tax obligation on the rental side. However, when you sell you will face unrecaptured section 1250 gain even though you're getting no benefit from depreciating the rental portion of your property.

Using whichever method of calculating rented portion that results in a lower percentage would be beneficial to you.

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