Roommates and taxes

**safari** · 09-27-2006, 08:36 PM

Re: Roommates and taxes

Theoretically you have to claim the rent as income on your tax return, but practically, if you don't claim it, IRS will never find out because it's the same house where you live in, and not a rental property. It basically comes down to your beliefs. If you decide to claim the rental income, make sure you also claim your expenses as a tax deduction. For example, if you buy something for the house that your cousin uses, like furniture, you can claim it as a business expense.

**sweeps** · 09-28-2006, 03:53 AM

Re: Roommates and taxes

Pub 527 See page 5 - Renting Part of Property.

**MonkeyMama** · 09-28-2006, 12:13 PM

Re: Roommates and taxes

Sweepsplayer gives a good link.

To translate the IRS pub into english now - yes you need to report the rent as income. You can also deduct expenses on the rental. However, not 1/2. But if you want to allocate insurance, utilities, general home repairs, etc., as a % to the space rented out to your cousin, you can do it. If house is 2000 square feet and room is 200 sq ft, then generally 10% of said expenses would be deductible. & of course assuming you are charging a fair rent. Any expenses specific to her room you can fully deduct - i.e. if you make repairs to that room.

Also, you can take depreciation on the room you are renting.

With rentals, once you consider depreciation, often your profit is 0 or negative. With this type of a situation you have to report your profit, but if you had a loss, you could not report the loss. Your profit would be 0 and loss would carryover to next year. Ain't the IRS nice??? ; )

Of course I live in Cali where depreciation almost always is more than rent, if you bought recently anyway, so maybe that is not so true everywhere, but something to point out.

I am not up to speed on what this does to the basis in your house though - taking depreciation. There could be tax issues down the road when you sell your house, though overall the $250k exclusion is pretty generous in its rules and may still apply in this case. I just not have dealt with this with someone renting in a home you are living in.

**cptacek** · 09-28-2006, 02:29 PM

Re: Roommates and taxes

I am planning on considering the money she pays me for rent as income. I also was not planning on writing off any expenses for painting her room, a % of the electricity, etc., because I don't want to have to keep track of that until I sell the house.

But, what if the electric bill is $84 and I pay the electric company $84 and she pays me $42? Is the $42 she paid me income?

**boefixepa** · 09-28-2006, 03:31 PM

Re: Roommates and taxes

I had roommates for a few months, I decided it wasn't worth the mess...I didn't claim it as income and I didn't write anything off. If the IRS wants to hunt me down...let them. Now if it was a long term thing and I was plannig to continue it for a length of time, my concious would dictate that I do something about it. However most city, by city ordinances, do not allow you to rent with out a license of some sort. Many cities do not allow you rent all all if it not zoned for it...even a room or a basement! So if you decided to play by all the rules, chance are you will have alot more than just taxes to worry about.

**MonkeyMama** · 09-29-2006, 10:52 AM

Re: Roommates and taxes

If she reimburses you and you do not deduct utilities, it is not income. If she reimburses you and you deduct it, then it is income.

You do not have to keep track of any of that stuff until you sell the house. I would deduct it. What changes the basis in your house is depreciation and improvements. I am afraid painting is not an improvement, it is simply a repair. Adding a roof is improvement (thought that is being debated in court these days) as well as bigger remodel items. You really only need to keep track of bigger items.

But to make it simple and be safe with the IRS - sure you can just report rent income.

Roommates and taxes