The type of rent you can deduct on your tax return depends on the purpose of the rental, special tax laws for the state of your residence and whether you have a business use for the rental property. It’s important to keep receipts for your rent with your tax records in case you are ever audited, but if you did not receive receipts for your payments, you can still obtain other documents to prove your expense.
Home Rent - Federal Return
Rent you pay for your personal residence is generally not deductible on your federal return for any reason. The IRS allows homeowners to deduct certain expenses to offset the costs of ownership, such as mortgage interest, property taxes and mortgage insurance premiums. However, since these are not costs typically incurred by renters, your residential rent expense is not deductible on your federal return unless you also have a business use for your home.
Business Use of Home
If you use a portion of your personal residence for business, you may deduct the business portion of your rent as an expense on your federal return. To qualify for this deduction, the space must be used solely for business and you can’t have another office location to conduct regular business from. To determine the business use of your home, measure the square footage of your business area and divide the result by the total square feet of your home. The result is the business use percentage. Apply this percentage to your monthly rent amount to determine your business rent deduction. In most cases, you won’t have receipts for this type of expense, so you’ll want to keep a copy of your lease, your business use calculation and proof of your monthly rent payments, such as canceled checks, with your tax return.
Other Business Property
Property rented 100 percent for business or self-employment is fully deductible. Examples of business property can include office space, leased business vehicles, office equipment and machinery. If you rent any of these items but do not have receipts, deduct only the portion that you can prove by canceled check, credit card statement or debit card entry on your business bank statement. You may also contact your landlord or leasing company for a statement of rents received. The statement serves as proof of your payments even if you do not have a physical receipt for each month you paid the expense.
Home Rent - State Return
Although the IRS does not allow a deduction for residential rent expenses without a business purpose, some states allow residents to claim a state tax credit for rent paid. Each state imposes different rules and qualifying criteria for the credit, so you must check with your state to determine if the credit is offered and if you qualify. For states that require that you submit proof of rent paid, either a certification form from your landlord or copies of your canceled rent checks serve as proof of rent paid.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.