Tax Rules to Rent Your Home

by Gregory Hamel, Demand Media
    Renting a home can complicate your taxes.

    Renting a home can complicate your taxes.

    Buying a home is one of the first major financial steps new couples take when starting their lives together. While home ownership is expensive, it can offer the opportunity to generate rental income to offset some of the costs of ownership. If you rent space in your home, it is important to be aware of the tax implications of rental income.

    Rental Income Basics

    Compensation you receive from renting your property is taxable income and it must be included in your total gross income when filing your income tax return. The IRS states that advance rent payments, expenses paid by a tenant, lease cancellation fees and security deposits that you do not plan to return count as rental income. Advance rent payments are income in the year you receive them, even if they cover rent in a future year.

    Rental Property Deductions

    The rental income you report on your taxes can be reduced by taking deductions on various rental expenses. Deductible rental expenses include the cost of repairs to a rental property, utilities, advertising expenses, insurance costs, real estate taxes and utilities. If you use a rental unit for your own personal purposes some of the time, you must divide expenses between personal use and rental use. For instance, if you rent home for six months and use it yourself for six months during a year, you can only deduct half of the upkeep and operating costs for the year.

    Personal Use of Rental Property

    If you do not use a rental property yourself, you can deduct the full amount of rental expenses, even if they exceed your rental income. During the year, deductions are limited to the amount of your rental income if you use a rental unit for more than 10 percent of the days you rent it out or for 14 days (whichever is greater).

    Short-Term Renting

    Large events like political conventions and sporting events can give you the opportunity to rent your home to travelers looking for a place to stay. According to the IRS, if you rent out your home for fewer than 15 days during the year, the home is not considered to be a rental property and you don't have to report the rental income or expenses on your tax return. In other words, you can make up to two weeks of rental income tax free each year.

    About the Author

    Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.

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