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I'm a homeowner considering renting out a room. How does this affect my taxes?

Debora L - 2008-03-29 11:12:42 - Renting Real Estate

Due to the mortgage crisis, of which I am an unwitting (or just stupid) victim (or idiot), I need to be able to pay more on my loan to avoid the disaster that is negative amortization. I can't refinance because the loan is worth more than house's current value. So, I'm thinking about a housemate, and wondering how the additional income affects my taxes. I live in Oakland, California.

Best Answer:

It does affect your taxes either way. ***If you do not report the income you run the potential risk of I.R.S. penalties ...IF you are ever audited. If you do report the income it is considered 1099-Misc income, and would be reported on your 1040. As you are the homeowner, technically you do not have to write out your own 1099, you just have to honestly report it in the proper income line on your tax forms. Not only do you have the "income" but you will also have the legitimate "expenses" that you could claim, depending on how you track these details. Imagine the hard numbers... Your annual income is $40,000, you rent out your room for $400 monthly, and the rental expenses are $75 monthly. Under this brief example your annual income will now be 43,900. Renting a room is a great way to make up some income. Just be sure you track your income and expenses for maximum benefit. If you are really considering this road seriously think about getting a landlords rental guide. Check out this site it will help greatly. www.nolo.com

Answers:

Yes .... often this is required to rent a part. Never hesitate if you rally want to. Equally ... as a commercial venture, this may require to pay taxes. Do a check with the local authority and a lawyer and go ahead.

If you mean property taxes, it won't affect them. The rental income would be taxable. Also, you'd better check on your homeowners insurance if you're going to have a tenant.

It does affect your taxes either way. ***If you do not report the income you run the potential risk of I.R.S. penalties ...IF you are ever audited. If you do report the income it is considered 1099-Misc income, and would be reported on your 1040. As you are the homeowner, technically you do not have to write out your own 1099, you just have to honestly report it in the proper income line on your tax forms. Not only do you have the "income" but you will also have the legitimate "expenses" that you could claim, depending on how you track these details. Imagine the hard numbers... Your annual income is $40,000, you rent out your room for $400 monthly, and the rental expenses are $75 monthly. Under this brief example your annual income will now be 43,900. Renting a room is a great way to make up some income. Just be sure you track your income and expenses for maximum benefit. If you are really considering this road seriously think about getting a landlords rental guide. Check out this site it will help greatly. www.nolo.com

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