<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>
