Renting part of your main home or renting a second home can put more money in your pocket. Becoming a landlord may move you to a higher tax bracket, but you may also be eligible for certain tax breaks that lower your taxable income. You may be able to deduct some expenses that are normally nondeductible, lowering your taxable income even lower.
Renting All of Your Home
Renting a second home means you must report rental income on your return. This includes any advance rental income, where the tenant pays ahead for any month in the next year. Rental income also includes money a tenant pays you to cancel a lease early.
You are able to deduct certain rental expenses, including:
- Management fees
- Cleaning and maintenance
- Utilities – electricity, water, and sewer
Note that some of these, like cleaning, insurance and utilities, are not normally deductible for homeowners.
Renting Part of Your Home
If you rent part of your main home, you must claim any rental income. As with renting a second home, rental income includes any amount a tenant pays you.
However, deducting expenses for partially renting your home can be a bit trickier. You must split any expenses – mortgage interest, mortgage insurance premiums, and real estate taxes – between the rented portion of your home and the unrented part.
You can also deduct expenses that are normally not deductible, like electricity and qualified home improvement projects. If you pay liability insurance, you may deduct the entire cost because it qualifies as a rental expense.
Claiming Rental Income – and Expenses
If you're reporting rental income and claiming deductible rental expenses on your 1040.com return, fill out the Schedule E screen. If you have more than one property, create a screen for each.
Also see Tax Breaks for Vacation Homes