Taxes and renting a room out in my home?

5 Replies

I rent a room out in my SFH. It is currently rented for $100 per week. How will this affect my Taxes? Will I be able to deduct a portion of my mortgage and property tax as a cost of business? What other implications will this have?

Yes, it is taxable income to you. It will go on Schedule E of your tax return. You are entitled to deduct all the direct costs associated with the rental as well as the indirect costs such as a portion of your mortgage and property taxes. To determine a reasonable percentage, I like to look at the ratio of square footage in the rented room versus the entire home (for during the rental period only if it wasn’t rented for the full year).

Originally posted by @Lance Turner :
I rent a room out in my SFH. It is currently rented for $100 per week. How will this affect my Taxes? Will I be able to deduct a portion of my mortgage and property tax as a cost of business? What other implications will this have?

Lance, the rules are explained in this blog post by my colleague  @Brandon Hall .

Keep in mind that, if $100/week is less than the market rate, you cannot create a tax loss, only offset the income.

Originally posted by @Brian Schmelzlen :

Yes, it is taxable income to you. It will go on Schedule E of your tax return. You are entitled to deduct all the direct costs associated with the rental as well as the indirect costs such as a portion of your mortgage and property taxes. To determine a reasonable percentage, I like to look at the ratio of square footage in the rented room versus the entire home (for during the rental period only if it wasn’t rented for the full year).

do you recommend setting up an LLC or just claiming it on your personal taxes?

@Chris Spencer

No difference on taxes. And creating an LLC for house hacking is probably an overkill.

@Lance Turner

With rooms renting for $100 a week in Greenville, SC - Making me think I may have to move to the area!

with your question in mind - If you are charging market rent - the income would be reported on Schedule E and you would be entitled to take a deduction for direct costs and a ratio of indirect costs.

The ratio to use for indirect costs needs to make sense. below are 2 examples
Square foot of rented room / square foot of bedrooms(assumes renter has access to common areas + Kitchen + bathroom).
Rented bedroom / total bedrooms.(again assumes renter has access to common areas).

Basit Siddiqi, CPA

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