Author Topic: Live-in-landlord: taxes and rental income  (Read 3632 times)

andy85

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Live-in-landlord: taxes and rental income
« on: January 26, 2015, 08:11:09 AM »
Ok...I plan on purchasing a modest house within 6 months. Probably 2 bed, 1 bath, around $80k, near the university and 3 miles from my work. I plan on renting a room out to cover most, if not all, of my mortgage payment. But this raises a few questions since I have never owned a home, much less rented out a room....

1) I am assuming i have to claim any rent as rental income, correct?

2) I had planned on filing as head of household (HH) for the 2015 tax year since it would keep me in the 15% tax bracket and i get a bigger standard deduction. But, in order to file as HH you have to pay at least half of the housing costs for 6 months if i am not mistaken. Would having my entire mortgage covered by a tenant prevent me from filing as HH?

Are there any other income/tax issues that i am overlooking here?

These are just some lingering questions i have surrounding my plans. Any insight would be helpful.

SpicyMcHaggus

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Re: Live-in-landlord: taxes and rental income
« Reply #1 on: January 27, 2015, 09:35:35 AM »
I don't know, but i'm subscribing for answers.

ncornilsen

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Re: Live-in-landlord: taxes and rental income
« Reply #2 on: January 27, 2015, 02:07:43 PM »
Ok...I plan on purchasing a modest house within 6 months. Probably 2 bed, 1 bath, around $80k, near the university and 3 miles from my work. I plan on renting a room out to cover most, if not all, of my mortgage payment. But this raises a few questions since I have never owned a home, much less rented out a room....

1) I am assuming i have to claim any rent as rental income, correct?

2) I had planned on filing as head of household (HH) for the 2015 tax year since it would keep me in the 15% tax bracket and i get a bigger standard deduction. But, in order to file as HH you have to pay at least half of the housing costs for 6 months if i am not mistaken. Would having my entire mortgage covered by a tenant prevent me from filing as HH?

Are there any other income/tax issues that i am overlooking here?

These are just some lingering questions i have surrounding my plans. Any insight would be helpful.

IANACPA.

Do you have a child or other 'qualifying person' living with you, as of 12/31 of this tax year?  If not, then you won't qualify for HH status. If you do, then approach it like this:

-Think of your house as two seperate dwellings. One is yours, the other is the tenants. Establish an arbitrary amount of "rent" you pay for the portion of the house you have access to. This amount is the housing part of the "cost of maintianing a home".  Your share of the rent, plus the rent collected from the tenant, should be inline with market prices.  If you cover more than 50% of the cost of maintainign the home on that basis, you could claim HH status.

Either way, there is tax liability on tenant income.
-Any rent/utilities collected from a tenant needs to be claimed on your taxes. However, you can deduct costs against that income, such as 50% of the utilities (unless the tenant pays his portion directly.) 50% of repair costs to common areas can be deducted, 100% of repairs made to tenant's dwelling can be deducted, you can claim 50% of the depreciation of the house (not of the land under the house though...)

I've been renting out two rooms for years, and I have yet to not be able to come up with enough costs, depreciation, etc to completely offset the rental income AND use up some of the $25,000 of losses I can claim for an actively managed property.

andy85

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Re: Live-in-landlord: taxes and rental income
« Reply #3 on: January 27, 2015, 02:24:44 PM »

IANACPA.

Do you have a child or other 'qualifying person' living with you, as of 12/31 of this tax year?  If not, then you won't qualify for HH status. If you do, then approach it like this:

-Think of your house as two seperate dwellings. One is yours, the other is the tenants. Establish an arbitrary amount of "rent" you pay for the portion of the house you have access to. This amount is the housing part of the "cost of maintianing a home".  Your share of the rent, plus the rent collected from the tenant, should be inline with market prices.  If you cover more than 50% of the cost of maintainign the home on that basis, you could claim HH status.

Either way, there is tax liability on tenant income.
-Any rent/utilities collected from a tenant needs to be claimed on your taxes. However, you can deduct costs against that income, such as 50% of the utilities (unless the tenant pays his portion directly.) 50% of repair costs to common areas can be deducted, 100% of repairs made to tenant's dwelling can be deducted, you can claim 50% of the depreciation of the house (not of the land under the house though...)

I've been renting out two rooms for years, and I have yet to not be able to come up with enough costs, depreciation, etc to completely offset the rental income AND use up some of the $25,000 of losses I can claim for an actively managed property.
no 'qualified persons' will be living with me, so there goes the HH idea...i must have overlooked that in my reading :)

but thanks for the other tax info regarding deductions and such. I have a feeling i will just have to learn by doing it and making some mistakes along the way as with anything else in life. At least i know now to read up more on tax deductions in this type of living situation.

Thank you for your input!

I'm a red panda

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Re: Live-in-landlord: taxes and rental income
« Reply #4 on: January 28, 2015, 08:01:42 AM »
Quote
But this raises a few questions since I have never owned a home, much less rented out a room....

Can't help you with tax implications, but I would recommend seriously considering a two bathroom home if you plan on renting a room.    Not only will you have to share your bathroom with a tenant, but any guest the tenant brings into the house.