Tax time got you scratching your head? It can be pretty confusing to consider the federal, state, and local implications of renting your home or even a room on a short-term basis.
Rental Income is Generally Taxable
First and foremost, the money you earn from renting out your home or room is typically considered taxable income. This means you should report this income on your annual tax return both state, federal, and even locally in some jurisdictions.
Deductions can Offset Income
While you may have to report and pay taxes on your rental income, you also have the opportunity to deduct certain expenses related to the rental. Common deductions include:
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Cleaning and maintenance fees
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Utilities (only if included in the rental price)
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Advertising or listing fees
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Property insurance
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Depreciation of the rented space
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Other related expenses
It's crucial to keep detailed records of these expenses as the IRS might require proof if you get audited.
Considering your Primary Residence
If you rent out a portion of your primary residence, things can get a bit complicated when you decide to sell your home. Normally, the sale of your primary home can qualify for a tax exclusion ($250,000 for single filers and $500,000 for joint filers). However, if a part of your home was used as a rental, you might owe taxes on the gain attributed to the rented space.
Local Taxes & Regulations
Aside from federal and state income taxes, localities also impose occupancy and/or hotel taxes on short-term rentals. It's essential to check with your local city or county government to see what taxes or regulations apply.
Ignoring these could lead to legal trouble.
Conclusion
Renting out your home or room on a short-term basis can provide a welcome boost to your income. However, it’s essential to stay informed about the associated tax implications. To ensure you’re fully compliant and taking advantage of all possible deductions, consider joining our conversation on November 9th with local tax experts. It’s free for members with a small fee for non-members.
