Are Lease Payments Tax Deductible?


Because lease payments typically constitute one of the most significant expenses for renters, it's not surprising that renters would like to find a way to deduct these payments from their taxes. This is especially true given the widely known deduction that homeowners receive when making mortgage interest payments. However, lease payments for a home or apartment are usually not tax deductible.

Home Lease Payments

For most renters of houses or apartments, lease payments made to landlords are not deductible, as these payments do not usually fit into any of the federal deduction categories. Deductions on a federal income tax return are permitted only for specifically enumerated expenditures including charitable contributions, certain retirement account deposits and medical expenses beyond a certain threshold. Rent is not one of these favored expenses, and is thus no more deductible than entertainment expenses or clothing costs.

Home Office Deduction

One situation in which you may be able to deduct lease payments on your federal taxes is if you maintain a home office for your business or for the convenience of your employer. The home office deduction allows you to make a deduction for the portion of your rental property used as a home office, in an amount proportionate to the relative size of the home office. This deduction requires strict adherence to IRS requirements, including that the home office be used entirely for business purposes.

State Renter's Credit

In some states, such as Minnesota and California, renters can receive a state renter's credit for lease payments under certain circumstances. These deductions do not allow for any reduction in federal income tax liability, but instead apply only to state income tax obligations. The states that allow taxpayers to claim a renter's credit have different rules and limitations for when the credit can be claimed. For example, the credit may be available only to those who have household income under a certain amount.

Business Lease Payments

While your house or apartment lease is probably not deductible, leases for business property are deductible provided that the property is being used for a business purpose. For example, a business can deduct leasing costs for its retail location or warehouse space. Businesses and individuals can also deduct lease payments made for equipment or other property that is used for business purposes. For example, an individual running a part-time landscaping business can deduct the cost of leasing a lawnmower.

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