pool at rental house

[Taxman10]

facts:

TP bought a home that has a "separate from the main house" apartment. It's basically a 2nd house on the property.

TP correctly allocates some expenses to the apartment (utilities) and tracks specific expenses (repairs).

Question:

There is a pool on the property, which TP and renter have access to. Should the Tax-Payer allocate costs of maintaining the pool to the apartment, since technically the renter can use it?

On the surface, it seems a little aggressive to me to allocate pool costs to the rental, but I guess technically you could argue that the pool is a perk of renting there and would make the apartment more desirable; therefore increasing potential rental income?

Any thoughts or ideas?

[zibazinski]

Yes, as well as the huge umbrella policy that is needed for it.

[Opti]

Aug 17, 2016 9:30:32 GMT -5 Taxman10 said:

facts:

TP bought a home that has a "separate from the main house" apartment. It's basically a 2nd house on the property.

TP correctly allocates some expenses to the apartment (utilities) and tracks specific expenses (repairs).

Question:

There is a pool on the property, which TP and renter have access to. Should the Tax-Payer allocate costs of maintaining the pool to the apartment, since technically the renter can use it?

On the surface, it seems a little aggressive to me to allocate pool costs to the rental, but I guess technically you could argue that the pool is a perk of renting there and would make the apartment more desirable; therefore increasing potential rental income?

Any thoughts or ideas?

I would think this would be a dangerous idea because it likely will be disallowed in an audit. I think the IRS would be OK with a partial assessment to the apartment, but even that could be disallowed if they could prove only family members used the pool.

[Taxman10]

Aug 17, 2016 10:08:30 GMT -5 Opti said:

Aug 17, 2016 9:30:32 GMT -5 Taxman10 said:

facts:

TP bought a home that has a "separate from the main house" apartment. It's basically a 2nd house on the property.

TP correctly allocates some expenses to the apartment (utilities) and tracks specific expenses (repairs).

Question:

There is a pool on the property, which TP and renter have access to. Should the Tax-Payer allocate costs of maintaining the pool to the apartment, since technically the renter can use it?

On the surface, it seems a little aggressive to me to allocate pool costs to the rental, but I guess technically you could argue that the pool is a perk of renting there and would make the apartment more desirable; therefore increasing potential rental income?

Any thoughts or ideas?

I would think this would be a dangerous idea because it likely will be disallowed in an audit. I think the IRS would be OK with a partial assessment to the apartment, but even that could be disallowed if they could prove only family members used the pool.

why do you think it would be disallowed under audit? I'm not disagreeing with you, but if you allocate the expense based on a reasonable % (either sq feet of the living units or # of people per unit), I think you'd have a legitimate expense (an aggressive position I agree). It would be difficult if not impossible to prove that only the TP's family used it and the renter never did. I guess you could try to allocate it based on days of use, but that would be difficult too unless you had a pool log-in sheet?

[Opti]

Aug 17, 2016 10:17:18 GMT -5 Taxman10 said:

Aug 17, 2016 10:08:30 GMT -5 Opti said:

I would think this would be a dangerous idea because it likely will be disallowed in an audit. I think the IRS would be OK with a partial assessment to the apartment, but even that could be disallowed if they could prove only family members used the pool.

why do you think it would be disallowed under audit? I'm not disagreeing with you, but if you allocate the expense based on a reasonable % (either sq feet of the living units or # of people per unit), I think you'd have a legitimate expense (an aggressive position I agree). It would be difficult if not impossible to prove that only the TP's family used it and the renter never did. I guess you could try to allocate it based on days of use, but that would be difficult too unless you had a pool log-in sheet?

There are two easy cases it likely would be disallowed under audit. First, if all the pool expenses were allocated to the apartment. Second, if the rental agreement disallowed pool use. I think a partial assessment would be the safest way to go.

Apologies if I misread the OP. It sounded like the TP wanted to allocate all the costs of the pool maintenance to the apartment.

[Taxman10]

No, definitely not allocate 100%...probably 25%-50% at most.

I don't know what the lease says.

There are 2 positions in the office....

1. It's a little aggressive and I wouldn't recommend it to a client, but if the client brought it to me and wanted to do it, I'd put it on their Schedule E and note in the file that I told them it was an aggressive position. (that's my position)

2. Split the costs 50/50 because each living unit has equal rights (assuming each has equal rights to it) (co-worker's position)

So I was just wondering what people here thought....

[bean29]

I am not sure anyone would rent a property with a pool on it and never use the pool. It is a little different than if someone rented in a rental complex and the pool was never used. In this case I would imagine the pool is an integral part of the rented property. So I think taking something a % based on bedrooms or # of people living in units? would be justified.

We looked at a 3 family property in Fort Lauderdale that was a rental friends have used in the past. The guy rents by the month and there are 3 units. I think (2) 2 bedrooms and the owners unit which I am not sure if it is a 2 bedroom or 3 bedroom unit. There was an in-ground pool. Place was minutes from the beach - but actually the pool was a major selling point - you could go to beach in AM, then come back "home" eat, and chill at the pool. He only rented the units by the Month. I would think allocating that one 1/3 owner's use 2/3 rental would be justified.  (We were looking to rent in the future, not buy, but he did show us most of his unit).

[Taxman10]

Just to clarify, no-one thinks putting 100%  of pool maintenance costs on Schedule E is a good idea. :-)

[TheOtherMe]

Make sure it is in the lease that the tenant has use of the pool.  If audited, this retired IRS agent would expect to see that in the lease.

I second the umbrella policy.