Tax Deductions for Renting Out a Room in Your House

Renting out an empty room provides income and a long list of new tax deductions to take.

Renting out an empty room provides income and a long list of new tax deductions to take.

If finances are tight you may get a bit of additional income by renting out that extra room in your house. The Internal Revenue Service expects you to report the rent received, but you'll find several advantageous tax deductions you can take to reduce tax liability. As with any business, keep careful records and receipts to back up all expenses you claim.

Which Tax Form

File Schedule E with a federal Form 1040 to maximize your allowable deductions. Report all rent received as income. Security deposits are not considered reportable rental income, unless you keep a portion when the tenant leaves, even if it's to cover damages. A portion of your residential home deductions will be taken here rather than on Schedule A, including pro-rated mortgage and property tax deductions.

Mortgage and Property Taxes

For your personal residence, these deductions are made on Schedule A. Since part of your home is now a business, you'll claim a pro-rated amount of mortgage interest and property taxes on Schedule E. Calculate what portion of your home is rental property and deduct that portion on Schedule E, and the remainder as usual on Schedule A. Using square footage of the rental room divided by the total square footage gives you a reasonable approximation.

Utilities and Maintenance

Chances are you won't have a separate electric meter for your tenant. As with the mortgage interest, deduct the correct proportion of relevant utilities and maintenance charges for the rental portion of the home. If you had a tenant for only six months, you can claim only half of an annual amount. An exception is made for telephone lines: You cannot deduct any part of your main home line as a rental expense, but if you install a separate line tenant use, you can deduct any costs not passed on to the tenant.

Other Costs

You can also deduct the cost of placing an ad to locate a tenant, any additional legal fees you incur to write up a contract and the cost of any required license. You can write off any repairs you make before a tenant moves in, including putting a lock on the tenant's door. If your tenant causes damage, you can write off the costs of repair unless reimbursed by insurance. If you have repair expenses for the entire home, you can write off only a pro-rated share to cover the portion allocated to the rental unit.

About the Author

Naomi Smith has been writing full-time since 2009, following a career in finance. Her fiction has been published by Loose Id and Dreamspinner Press, among others. She holds a Master of Science in financial economics from the London School of Economics and a Bachelor of Arts in political economy from the University of California, Berkeley.

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