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Renting out a room in my TownHome

R

RedShirt

Golden Member
Howdy,

I am considering purchasing a townhouse and letting a workmate move in and pay rent (This would work out great, it's help on my mortgage payments, and he will get a better deal than if he got his own apartment).

I am concerned on how one goes about this (and not upsetting Uncle Sam).

Do you simply report the rent as income? Or how does one "legally" do this? I've done some googling and almost anything the pops up is relevant to the UK only.

Any help is greatly appreciated! Even if it's simply a link to get me started!
 
First thing I'd look into is liability protection - start a company. Don't do this under your own name. Otherwise I have not a clue.
 
Originally posted by: Drakkon
If theres a book on it amazon has got it
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1 used & new available from $109.50
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Seems to be quite expensive!

The part that makes finding this information somewhat difficult is that I will be living on the property as well... This seems to be extremely common in the UK, but not so much in the USA.

Secondly, I don't know if I like the idea of starting my own company just to collect Rent. I mean, if this is how one legally needs to do this, then I will, but that seems to be a bit of work.

I should say that I trust the person that would be renting from me 100%.
 
Well if you are willing to take the risk, than report it as small business income on an attached form to your 1040EZ (I think it's schedule c you need to print out and report on, but don't hold me to that).

 
Originally posted by: thedarkwolf
Dude just do it under the table. If any problems come up just say he is your life partner.
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Haha

I think that's what most people do anyways (under the table), but I really would like to know the legal way to do this.

It appears in the UK, the government really doesn't even care and won't tax on the money taken in (up to a certain amount). I'm hoping it's the same in the USA.
 
Originally posted by: dmcgough
First thing I'd look into is liability protection - start a company. Don't do this under your own name. Otherwise I have not a clue.
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No, you don't have a clue at all.
 
Hmm, so if I fix something while my tenant is occupying my place I think I can write that off as an expense, hmm.
 
Originally posted by: ElFenix
clickay
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Interesting, so it must be reported as income.

This makes things much more complicated and bothersome. I'd have to keep track of all repairs and extra costs etc. I wonder if I could deduct part of my association fee and property tax.... Plus I would be able to depreciate the value of my residence? Ugh. I have a lot more research to do. I'm kinda bumbed out that the USA's laws in the regard are not as friendly as the UK's.

Thanks for the link BTW
 
Originally posted by: RedShirt
Originally posted by: ElFenix
clickay
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Interesting, so it must be reported as income.

This makes things much more complicated and bothersome. I'd have to keep track of all repairs and extra costs etc. I wonder if I could deduct part of my association fee and property tax.... Plus I would be able to depreciate the value of my residence? Ugh. I have a lot more research to do. I'm kinda bumbed out that the USA's laws in the regard are not as friendly as the UK's.

Thanks for the link BTW
Click to expand...

It is very admirable that you are willing to report that income. I bet that <1% of Americans that rent out like that actually report that income.

 
If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.
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Link

Let's say my mortgage was $1200 a month and I charged my roommate $400 a month. Does this classify as not for profit?

I think I'm going to have to make an appointment with a Tax adviser 🙁
 
Originally posted by: RedShirt
If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.
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Link

Let's say my mortgage was $1200 a month and I charged my roommate $400 a month. Does this classify as not for profit?

I think I'm going to have to make an appointment with a Tax adviser 🙁
Click to expand...

That's saying you can cancel out any rent income with expenses. Any extra rent income would need to be reported as part of your income.
 
Originally posted by: thepd7

It is very admirable that you are willing to report that income. I bet that <1% of Americans that rent out like that actually report that income.
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Considering all the extra hoops you have to jump though, and coupled by the fact that most people can probably deduct or depreciate enough things to totally counter-act the income, I can see why less than 1% would actually keep track and report it 🙂

But thanks for the compliment!

 
Schedule E will report the income and expenses for the Rental. There will also be depreciation (Good) of the house based on the amount of the house that is rented.

This will allow you to deduct some of the utilities (if you pay for them all) and maintenance of the place as well as repairs. The write off is based on a percentage of use (either by bedrooms or square footage).
 
So what if I got a new furnace and the tenant was there for 5 months of the year using 1/2 the house. Would it be possible to write off 1/2 of the furnace cost?
 
if you are so concerned a bout write offs. Start a business and claim a home office. Its a heck of a lot easier and allows for many more deductions outside of the home as well.
 
Originally posted by: KLin
Originally posted by: RedShirt
If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot carry forward to the next year any rental expenses that are more than your rental income for the year. For more information about the rules for an activity not engaged in for profit, see chapter 1 of Publication 535.
Click to expand...

Link

Let's say my mortgage was $1200 a month and I charged my roommate $400 a month. Does this classify as not for profit?

I think I'm going to have to make an appointment with a Tax adviser 🙁
Click to expand...

That's saying you can cancel out any rent income with expenses. Any extra rent income would need to be reported as part of your income.
Click to expand...

If he occupies 1/3 of the house, 1/3 of your minor and major improvements to the house are deductible. You can also deduct 1/3 of your property taxes and property insurance. I have owned a duplex for about 5 years now, with 1/2 of the entire property being a rental, with my son and myself occupying 1/2. Just be sure to save any receipts that deal with upkeep and maintenance, ranging from a box of nails to any major appliances. The Turbotax online forms cover all of these areas in pretty good detail. Also be sure to have a lease or rental agreement so your roommate / tenant knows what is expected.

 
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