Does renting a room count as income?

We get it! Money is tight, the economy is bleak, and you are looking to make ends meet and pay off some debt. So, you have considered renting a room out and want to know the tax consequences.  You’ve come to the right place! 

 
Do you have a room to rent?We don’t blame you as renting out a room or two can create some serious cash and might possibly provide you with enough extra income to stay “mortgage free.” 

 
As part of your new role as a landlord, please schedule some time with us so that we can make sure your tax return stays “damage free.” Depending on the length that our tenant is paying you rent determines whether or not it needs to be claimed on our tax return.  If your home is rented less than 15 days during the year then you may not need to claim it as income. 

 
If you are renting your home more than 15 days, then you need to not only track the income, but also track your expenses.  You will have to divide the expenses between personal and rental use.  There are some other potential exceptions including the homeowner’s association fees and insurance as these expenses apply to the entire home during the entire year. 

 
Rental properties, time shares and other properties come with additional rules so make sure you have your tax plan reviewed. 

 
Although, we can’t tell you what to charge for rent on your property, since you will be in profit seeking mode, make sure you charge a fair price as you want to report sufficient income at the end of year.  You can always check out other homes for rent in the area and do a little comparison shopping to determine how much you should charge. 

 
If you are not charging fair rental value, the IRS can come back and say you are not renting the home with the intention of making a profit. This means rental expenses could be even further limited under the hobby loss rules. 

 
Happy renting! And again, let’s chat…you need a tax preparer and I might need a room to rent! 
 

David Rocci 

 

Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

 

Posted To: Tax Rants by David Rocci By: David Rocci On: Friday, September 07, 2012
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