Renting Out Rooms

Today TaxMama hears from Bloomers in the TaxQuips Forum. She is renting out the rooms in her 5-bedroom house. Bloomers asks.  “What are the laws for renting out rooms?  If the amount I am making in rent every month, on average, does not amount to the total cost of the mortgage and house expenses, is there a special tax procedure?”  http://taxmama.wpengine.com/forum/taxquips/rental-income-1/


Dear Bloomers,

These days, your arrangement is increasingly common – and very smart.

IRS has a publication that explains how to deal with rental income.  IRS Publication 527 http://www.irs.gov/publications/p527/index.html .

Chapter 4 of this publication talks about how to handle it when you rent out only part of the property.   I would still recommend that you get some help from a tax professional to set things up for you.

Another thing you might consider doing is to treat each room as an apartment, to track rents collected, rents in arrears, direct costs for the room, etc. Quicken Rental Property software may be ideal for you.  It’s a little cheaper at Amazon than from Intuit.

Remember to be very careful about who you rent to.

1) They will be living IN YOUR HOME. They can either be a joy – or make your life a living hell!

2) It takes just as long to evict a roommate as a regular tenant. You may be stuck with someone who is not paying rent, is bringing in unsavory guests, and is destroying your property for two or three months after eviction proceedings start.  it could even get dangerous. Screen VERY carefully.

3) Even if it’s your best friend or relative – especially if it is! Make the arrangement an arm’s length deal, with a contract and all.  Always treat the tenant relationship professionally and you will get to keep your relationship intact AND get paid.

[Also, remember to set up house rules – and enforce them consistently!]

Rita Lewis, EA from CT adds a tip about getting the right permits.  You can start by checking with your town.  Try their web site for an overview of zoning laws.  In her town, a home owner can have up to four unrelated renters in his home, but more than that is not allowed under current zoning.  In a neighboring town that does allow boarding houses, they have to meet specific zoning regulations re parking spaces, emergency exits, etc.

And, oh yes, make sure your homeowners insurance knows you are taking in tenants. Get the appropriate coverage!

And remember, you can find answers to all kinds of questions about renting out your home and other tax issues, free. Where? Where else? At www.TaxMama.com.

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