Does a Homeowner Have to Claim Rent Money From Somebody Renting a Room in Their House?
Many people choose to rent out rooms in their homes for extra income. While this may not seem like the same kind of income garnered from collecting wages, from the perspective of the Internal Revenue Service, it is. A person will have to pay federal taxes -- and, in some cases, state taxes -- for income gained from renting out a room to a tenant.
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Rent Money
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The IRS considers money that a person collects as rent from another party to be a form of income. Even if the person pays in kind to the landlord, the use of the room is still technically income. However, allowing someone to live in a residence as a guest, free of charge, does not count as income. In fact, the homeowner may be able to claim the person as a dependent if he pays their bills.
Income Taxes
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The IRS charges income taxes on income collected from people who lease out their homes. The tax rate applied to this income is the same that is applied to other forms of income. In addition, many states and even some cities will require that you pay taxes on this income as well. The rate at which states and cities will charge income garnered from room rentals will vary.
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Penalties
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People who fail to pay taxes on rental income will, if caught, be assessed a fine by the IRS. This fine will usually include a penalty fee for failing to pay the money on time, as well as interest payments, depending on the lateness of the payment. A homeowner who deliberately hides this income will generally receive a steeper penalty than a person who failed to pay taxes out of ignorance.
Deductions
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Renting out a room in your home does mean that you are eligible to claim certain deductions on your taxes related to money you used to fix up the room. For example, repairs and operating expenses designed to keep the room in rentable condition are deductible. In addition, uncollected rent and depreciation on the value of the room is also eligible for deduction.
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