You bought a duplex, moved into one unit, and rented the other. Nice move — your tenant is covering part of your mortgage, you're building equity, and your housing costs dropped substantially.
Now it's tax time, and you're staring at a pile of expenses wondering which ones you can deduct and which ones you can't.
Here's the thing: you can't deduct everything. The IRS treats a property where you live and rent as two things at once — a rental and a personal residence. Most shared expenses need to be split, and the IRS is specific about how you do it.
The split: rental vs. personal
The rental portion of your expenses goes on Schedule Eand reduces your taxable rental income. The personal portion isn't deductible as a business expense — though mortgage interest and property taxes on your personal unit can still go on Schedule A if you itemize.
So for a triplex where you live in one unit and rent two: roughly two-thirds of most shared expenses are deductible as rental costs, one-third is personal. The IRS gives you two ways to calculate exactly how much.
Method 1: Square footage
Divide the rental square footage by the total square footage of the property. More precise, and often gives you a higher deduction if your rental units are larger than your own.
Example
Your duplex is 2,400 sq ft total. You live in the 1,000 sq ft unit. Your tenant has the 1,400 sq ft unit.
Rental percentage = 1,400 ÷ 2,400 = 58.3%
Method 2: Number of units
Divide the number of rental units by total units. Simpler, and works well when units are roughly the same size.
Example
You own a triplex. You live in one unit, rent out the other two.
Rental percentage = 2 ÷ 3 = 66.7%
💡 Tip
Use whichever method gives you the higher deduction and stick with it year over year. Switching methods every year is a red flag — if the IRS notices a pattern, they'll ask questions.
What's deductible and what isn't
100% deductible — direct rental costs only
- Repairs to the rental unit specifically (new fixture in your tenant's bathroom)
- Advertising and tenant screening
- Property management fees covering the rental units
Split by your rental percentage
- Mortgage interest — rental % on Schedule E, personal % on Schedule A
- Property taxes — same split
- Homeowners insurance (if it covers the whole property)
- Shared utilities you pay — water, gas, trash
- Depreciation on the building
- Whole-property improvements — new roof, HVAC, etc.
Not deductible
- Repairs to your personal unit
- Any expense that's 100% personal
The most common audit trigger for house hackers
Deducting 100% of shared expenses — mortgage interest, insurance, utilities — on Schedule E when only part of the property is rented. The IRS compares reported rental income against the size of your deductions. When the math doesn't add up, you hear about it.
Depreciation: the deduction most house hackers underuse
Depreciation is one of the biggest tax benefits in rental real estate, and it's routinely miscalculated on mixed-use properties. You can only depreciate the rental portion of the building — not land, not your personal unit.
So if your rental percentage is 67%, you depreciate 67% of the building's value (purchase price minus land value) over 27.5 years. That could easily be a $5,000–$10,000 annual deduction you're either missing or getting wrong.
When you eventually sell, the IRS will recapture depreciation on the rental portion — even if you later converted to full personal use. Keep clean records of what you depreciated and when. Surprises at sale are the worst kind.
What if things change mid-year?
If you move out and rent your unit, or a tenant leaves and you move in, prorate your deduction for the months each scenario applied. The math is the same — different percentages for different parts of the year.
Quick rule of thumb: if an expense would exist even without the rental, split it. If it only exists because of the rental, deduct it in full.
Keep your rental percentage documented
Measure your square footage once, write it down, use the same number consistently across your return. That single habit will save you hours if you ever face a review.
Kulta lets you set a rental-use percentage per property. Shared expenses get split automatically, the rental portion flows to your Schedule E report, and the personal portion is tracked separately. Less math at tax time.