The Shrine

<div style='font: bold 9pt ; text-align: left; '>If I choose to have a roommate living in the house with me and they pay me rent, how does this work taxes-wise?

For example, say I have a roommate who pays me $500 plus 1/2 the utilities every month as rent. I own the house so I am just taking that money and putting it towards the mortgage.

I'm guessing I have to claim that money as income. Now, if he didn't claim anything as being paid as rent, no one would know the difference between him just giving me the money as a gift and paying me rent. But that's a risky deal, I think, considering it'd be too easy to get caught, etc.

But I wasn't totally sure how this all works.</div>

<div style='font: bold 9pt ; text-align: left; '>Ok, I checked...it is taxable income. How do I figure out how much the IRS is going to screw me out of then when tax season comes?</div>

<div style='font: 12pt ; text-align: left; '>I'm checking into the exact same thing here Lox, if I get a good answer I'll tell you.</div>

<div style='font: bold 9pt ; text-align: left; '>her and my Dad owned a rental property down in Ocean City for years and they never got taxed on the rent they received because they deducted everything they spent on the place from it (which you can do) so any repairs got deducted, heating, A/C, Cable TV, all that got deducted and they'd keep all the rent. Then we'd use the place 1 or 2 weeks a summer for free. :)

So that is probably how it works. The question now is what is a valid deduction. If I fix the water heater, that affects myself and my renter so do I deduct the full expense for half of it, etc?

I'll let you know if I get anymore info.</div>

<div style='font: 10pt Tahoma; text-align: left; '>In your example, you would indeed take half the elec, half the repairs to the heater, etc. Although if you own a 3 BR place and only rent one room you should really only take 1/3.


The chances of you getting audited is slim (unless you have some other glaring red flag), so if you dont report it, you would probably never get in trouble. However, i wouldnt advise you try because you never know.</div>

<div style='font: bold 9pt ; text-align: left; '>Cool, thanks for the info. I had a feeling you'd know. :)</div>

<div style='font: 10pt Tahoma; text-align: left; '>its on Schedule E of the 1040.</div>

<div style='font: 9pt ; text-align: left; '>You can set it up as a separate income stream and take all related expenses (ie. telephone, water, gas, heat, maintenance & repairs, etc.) for his portion (guess it would be half) against that income, so the taxes should be minimal.

Flip, can you guys deduct mortgage interest and property taxes down there? We can up here.....</div>

<div style='font: 9pt ; text-align: left; '>Basically, it's all expenses to make the house livable (no food, you can't get cute). Electricity, heat, gas, repairs & maintenance, etc. Up here, you can also take the property taxes and mortgage interest on rental income (ask your mortgage broker for an amortization sked), not sure down there</div>

<div style='font: 10pt Tahoma; text-align: left; '>You can if it is a seperate rental property, but this is Lox's house so hes already deducting the mortgage interest and property taxes for himself. You cant get double the deduction or anything.</div>

<div style='font: 10pt Tahoma; text-align: left; '>Well, maybe you are supposed to split it.... bah, i'll have to look it up now.</div>

<div style='font: 9pt ; text-align: left; '>Yeah, he might have to if it's half the premises that's under rent.</div>

<div style='font: bold 9pt ; text-align: left; '>Renting a Room


So you're bringing in extra money by renting part of your home out to a tenant. Good news: You can deduct any rental-related expenses on your tax return!

Of course you must also report the income you collect from your tenant, regardless of whether the income collected is in cash or services that your tenant does for you. Your rental income, minus any expenses you incur related to your rental, should be reported on Form 1040, Schedule E.


What Can I Deduct as Rental Expenses?
You can deduct a portion of your home mortgage interest, property taxes, and homeowner's insurance in addition to certain personal expenses that are normally not deductible, including:

Electricity
Water
Gardening expenses
Expenses for repainting parts of your house.
You can also take a deduction for wear and tear, depreciating the portion of your residence that you rent out as well as any furniture or equipment that you provide as part of the rental.


How Do I Allocate Expenses?
When you incur a cost that applies to both your personal use of your home and the rental use (such as these expenses), you must determine what percentage of that expense applies to the rental. The IRS allows you to use any reasonable method for dividing the expenses between the two usages, but the most common methods are based on the number of rooms in your home or your home's square footage.


Example
You rent a room in your house to a college student. The room is 10 x 15 feet, resulting in a total of 150 square feet of rental space. Your entire house has 1,000 square feet of floor space, which means that you can deduct 15% of any expense that is divided between personal use and rental use.

Assume that you have the following monthly expenses:

Home mortgage interest expense - $1,000
Property taxes - $200
Utilities - $100
Insurance - $50
Using the 15% figure above, you can deduct the following expenses each month:

Home mortgage interest expense - $150
Property taxes - $30
Utilities - $15
Insurance - $8
In addition, if you paid $500 to have parts of your house painted, you could deduct a one-time expense of $75.


Expenses You Don't Have to Divvy Up
If an expense can be attributed completely to the rental unit, you do not have to divide the expense between the personal and the rental portions.

If you install a separate phone line running into the rental room, you can deduct 100% of that cost as a rental expense.
If you paint your rental room or pay premiums for liability insurance in connection with your rental room, you can deduct the entire cost as a rental expense.
If you run a credit and background check on any potential tenants, you can deduct 100% of the fees as a rental expense. But if you collect a fee from your tenant or prospective tenant to run a credit check, you must report that amount as rental income. If you incur any legal fees related to renting out a room, such as attorney fees for reviewing a rental agreement, you can deduct those.


Where Do I Report All This?
You report all rental income and expenses on Form 1040, Schedule E. You report the portion of home mortgage interest expense and property taxes not deducted on Schedule E as itemized deductions on Form 1040, Schedule A.

Be sure to keep careful records of the expenses you incur when renting part of your home. Receipts for repairs performed and rents collected must be kept with your tax records for at least three years after you file the tax returns in which you report your rental income and expenses.</div>

<div style='font: 12pt ; text-align: left; '>Sweet! I'll have to check this with the Canadian Tax code but it's a good start. Thanks a bunch.</div>

<div style='font: 9pt ; text-align: left; '>Yep, the same as up here, just a different schedule (of course)</div>

<div style='font: 9pt ; text-align: left; '>It's the same thing</div>