Landlord Tax Deductions: What House Hackers Can Write Off

I’m an accountant before I’m a house hacker. Here’s what’s deductible when you live in one unit and rent the other, including a deduction many people miss entirely.

This is one of the few posts on this site where my day job matters more than my duplex. Most house-hacking content either skips taxes entirely or gets the owner-occupied split wrong, because it’s explaining rules written for a landlord who doesn’t live in the building. If you live in one unit and rent the other, your deductions aren’t all-or-nothing. They’re split, and getting the split right is worth real money every year.

Standard disclaimer, and I mean it: this is not tax advice, and I’m not your accountant. It’s what the rules say and how I think about my own return, based off my unique position. Talk to a CPA before you file.

The core idea: you have two properties in one building

The IRS treats an owner-occupied duplex as a mixed-use property: part personal residence, part rental. Per IRS Publication 527, when you rent part of a property while living in the rest, you divide your expenses between the rental portion and the personal portion. The most common way to split is by square footage or by number of rooms: if the rented unit is half the building, roughly half of the shared expenses are deductible as rental expenses.

What’s deductible on the rental side

For the portion of the property that’s rented out, these are generally deductible against your rental income:

• Mortgage interest on the rental-allocated share of the loan.
• Property taxes, allocated the same way.
• Insurance on the rental portion.
• Repairs that are specific to the rented unit are 100% deductible; repairs to shared systems (roof, furnace, foundation) get split by the same ratio as everything else.
• Utilities you pay on the rented unit’s behalf.
• Property management, advertising, and tenant-screening fees, if you use them.

The unit you live in doesn’t generate any of these deductions — that side is just your home, taxed like any other owner-occupied residence (mortgage interest and property tax may still be deductible on Schedule A if you itemize, subject to the usual personal-residence rules, but that’s a separate deduction from your rental activity).

Depreciation: the deduction people miss

This is the one that gets left on the table more than any other. You can depreciate the rental-allocated portion of the building (not the land, and not your personal-use portion) over 27.5 years using straight-line depreciation, per IRS Publication 527. On a $470,000 duplex where, say, $350,000 is attributable to the building and half of that to the rented side, that’s roughly $175,000 depreciated over 27.5 years — about $6,360/year, on paper, against a unit that’s also producing real rental income. Depreciation doesn’t cost you any actual cash; it’s a deduction against income you already collected, which is why it’s worth understanding even if none of the rest of this feels relevant yet.

The tradeoff: depreciation you claim reduces your cost basis, which can mean depreciation recapture (taxed at up to 25%) when you eventually sell. It’s a deferral, not a permanent write-off — still valuable, just worth knowing going in.

What I actually deduct on my duplex

On my own return: mortgage interest and property tax get split by unit square footage, roughly half attributed to the rented side. Repairs to the rented unit specifically (a garbage disposal, a bathroom fan) are fully deductible; the roof replacement I budgeted for gets split the same way as the interest and tax. Depreciation runs on the rental-allocated half of the building value over 27.5 years. None of this is exotic — it’s the standard mixed-use split, applied consistently every year, which is most of what a CPA is actually checking for.

Where cost segregation fits (and why it usually doesn’t, yet)

Cost segregation is a study that breaks a building into components (appliances, flooring, fixtures) that depreciate faster than 27.5 years, front-loading deductions into the early years of ownership. It’s a real strategy, but the study itself typically costs a few thousand dollars and makes the most sense on larger properties or portfolios, not a single owner-occupied duplex where half the building isn’t even a depreciable rental in the first place. Worth knowing the term exists; not usually worth paying for on a first house hack.

Do you actually owe taxes on the rental income?

Usually less than people expect, once mortgage interest, property tax, repairs, and depreciation are netted against the rent you collect — I wrote about the mechanics of that in Do You Pay Taxes on House Hacking Income?. And if you want the fuller mechanics of how depreciation itself works on a rental, see Depreciation on a Rental Property, Explained.

The point

An owner-occupied house hack isn’t taxed like a straightforward rental, and it isn’t taxed like a straightforward home either — it’s split down the middle, unit by unit and expense by expense. Get the split right, don’t forget depreciation, and get a CPA who’s actually seen a Schedule E with a personal-use allocation on it before — not every preparer has.