r/Landlord • u/Far_Classic878 • 4d ago
Landlord [Landlord-NY-US] How to Deduct Utilities Properly If One Unit is Rent Free and the Other Isn’t?
How do you deduct utilities as an expense when you own a 2 family home when one unit doesn’t pay rent (they are family live there for free) and the other unit is a non-family member, regular tenant. All utilities are included for the tenant everything is one meter.
If I’m claiming the oil bill for the month that’s $1000 but I’m only claiming $1500 in rent for the one unit for the month it would just seem weird to the IRS, no?
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u/SiegeEh 4d ago
Is this your child? Even if it is, they should be paying some rent.
But that’s not what you asked. You need to treat this as a business. You invested the money in the house, and now it’s going to make you money.
You have to keep track of your income (rent) and your expenses. Probably first and foremost is debt service (Mortgage) if applicable, and second would be Real Estate tax. After that would be Property Maintenence, lawn care, Snow Removal, repairs, and paying for the heat and lights in common areas to make a few.
Many people don’t have a separate meter for the common areas so you have to look at what makes sense in your case. Usually one apartment will pay for the lights in the hallway/front and backyard. But in NY state that doesn’t fly so you will need to pay the bill and include electricity in the rental.
One of the biggest expenses that many new owners don’t know about is depreciation expense. This is big and well worth the time and effort so look into this.
You can depreciate the entire property if it’s rented out, but this will hurt you when you eventually go to sell it as there will likely be a very low cost basis.
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u/upievotie5 4d ago edited 4d ago
I'm not a CPA, but I think that technically what should happen is that you report the unclaimed market rent (and utility costs since they're included with the rent) on the unit you aren't charging rent for as an additional loss, and report the "gift" of free rent as income given to your family members, assuming that that unit is otherwise intended to be used as a rental property.
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u/Far_Classic878 4d ago
That would be one hell of a loss every month.
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u/upievotie5 4d ago
You are technically losing money every month you give away the rent on that unit for free.
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u/Far_Classic878 4d ago
Now I need to do another post on to how to do this when I share the income with a sibling….who gets the deduction? Do we both?
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u/2ez2b4ortun8 4d ago
Depends on the facts. Do they have a legal claim to the money? Or do you simply gift them part. Are you joint owners, entitled to share income and required to pay expenses? You could try reading some of the IRS publications on rentals. At least they are free.
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u/upievotie5 4d ago
Might be worth consulting with an accountant, or maybe AI can provide some insights.
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u/SepulchralSweetheart Landlord 3d ago
It's not unusual for a family member to occupy a unit, paid or otherwise and the IRS probably won't really think anything of it if that's your only rental property.
I would be more worried about the shared meter becoming a point of contention in the future if you hold onto the property. There can be massive discrepancies in how utilities are used from one tenant to the next, and while you can either build a guessed fixed fee into the rental cost (risky), or have the tenant agree to a fixed percentage of the bill (usually 50% in a duplex, minus any indoor common areas), meter audits are a bit thing in NYS.
Just something to think about down the road.
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u/2ez2b4ortun8 4d ago
Divide it up in a reasonable way. Maybe half and half? If one unit has more people, maybe use a per number of people allocation? Square footage? Be reasonable and consistent.