Is Renting a Room Taxable?
Generally, any money you take in during the tax year through renting property to someone is considered income, and the Internal Revenue Service will want you to pay taxes on it. With most rentals, you can deduct certain expenses from that income, so the amount you pay taxes on is less. However, special considerations exist if you rent a room in your own home. In this case, you usually don't get to take the same deductions.
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Determining Your Own Residency
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If you live in the same house where you're renting the room for 14 days or more, you might face limits with regard to deducting losses from that rental on your tax return. Limits also apply if you live there for 10 percent of the days you rented the room. For example, if someone lived there and paid you rent for six months, or 180 days, restrictions to your deductions would apply if you lived there for 18 days or more. The IRS uses whichever figure is greater.
Your Tenant's Residency
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How long you rent the room out is critical to whether you have to pay taxes on it. If you rent it for less than two weeks, or 14 days, the income is tax-free, no matter how much you charge. Proceeds from a rental of 15 days or more are income.
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Deducting Expenses
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If you rent a portion of your own home, you must base the deduction of your costs on how long you were in residence, as well as how long your tenant lived there. For example, if you rented out the room for six months, or 180 days, and you also lived there all year, you would divide your tenant's number of days by the total number of days the dwelling was in use, which would be the 365 days you lived there. This would determine the percentage of your rental-associated costs that you can use as deductions, or approximately 49 percent. If deducting this 49 percent from your rental proceeds results in a loss, you probably won't be able to claim that loss to offset other income.
Exceptions
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If you never use the room you rent for your own purposes, you might be able to take the full deductions to reduce the amount of tax you pay on the income. It then becomes a rental unit, not what the IRS calls a "dwelling unit," because you also live there. This might apply if your tenant does not use your bathroom or kitchen, because the room you're renting has its own bath and your rental agreement does not include cooking privileges. If you regularly clean the room between tenants, or for your tenants, you're also providing a service. In both cases, this turns the room into a type of business enterprise. You could probably claim the income as self-employment income and deduct all your associated expenses, but speak with a tax professional to make sure you meet all requirements.
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References
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