During tax season, it can seem daunting to bring together all expenses and income, and if you’ve got to this step, then great. But what about other costs, or incomes, like rent from a property?
Whether you’re a renter or a landlord, you might get waves of information, and it still doesn’t answer your questions or explain the circumstances where you can or can’t claim on your taxes.
Considering roughly 43.6 million rent-based households in the US, the rent you give or receive must be considered in some way, right?
After all, housing costs can be high in certain areas and are probably one of your biggest expenses every month. If the property you live in is a place of business or a side job, could you save money in this way?
In this guide, you can find out who can claim rent on their taxes, how much you can deduct, and how to claim it, so read on to find out more.
Who Can Claim Rent On Their Taxes?
To start, you have to be in a specific situation to be able to claim a deduction on their taxes, and unfortunately, it’s not deductible for renters as it’s not permitted by the IRS.
If you’re self-employed and use the place you live as a workplace, you can deduct a portion or even write off the rent from your taxes, which is usually based on how much square feet of the property is used for your business.
Before you start building that office, you should be aware that your home turned business has to achieve certain requirements in order to be able to start claiming expenses.
If you’re a landlord, you can claim several expenses related to buying, operating, and maintaining the property, including rental payments.
So rather than taking one large deduction when you buy a property, the depreciation lets you reduce the costs over the property’s useful life, but this has its own set of requirements as well.
To be more specific, if you rent out a property for longer than 14 individual days during the tax year, you have to report the rental income on your tax return, so the net income is taxable as ordinary income.
If you rent out the property for 14 or fewer days, you don’t have to report or pay taxes on the income. This is useful if you may rent out your property as a type of holiday home for a few days of the year.
What Are The Rules For Writing Off Your Rent?
If you’re using your home as a workplace, you might be wondering what the requirements are for you to claim your rent on those taxes.
Below are the steps you want to follow in order for you to know exactly what constitutes a workplace and what you should be aiming for if you decide to use your home in this way.
- You should have a 1099 income- This income is different from employee income as it includes any freelancing, small business, and self-employment income that is over $600 a year.
- Your home should be your office- If you commute to an external office that you own, for example, the IRS will inform you to pick one of these offices to write off. The best advice here is to use your home as your primary office, so you’re not struggling to decide which office to write off.
- Work from home regularly- You have to ensure that you work at least monthly from your home office, and any less time than this isn’t considered a home office, but you don’t need to live in your office for it to count. Use the office a few times a week, and you should be fine.
- Have a dedicated workstation- This space doesn’t have to be a separate room or area, and a workspace in your bedroom or living room counts, as long as it’s used exclusively for business purposes. You want to avoid claiming a couch or dining room chairs as a home office as they aren’t used specifically for your business.
How To Claim Rent On Your Taxes If You’re A Landlord
If you own your property and want to take any deductions, you have to declare any rental income you may receive for the occupation and use of the property.
Below are examples of amounts that may be considered rental income and must be listed on a tax return.
- Advance rent- This covers the amount you receive before the period that it covers, so you want to include advance rent in your rental income in the time that you receive it regardless of the period covered.
- Payment for canceling a lease- This payment occurs if your tenant pays to cancel a lease. The amount you receive is rent, so you want to include the payment in your income in the year you receive it.
- Expenses paid by tenant- If your tenant pays any of your expenses, you must include them in your rental income. You can deduct the expenses if they are deductible rental expenses, as this can cover bills that a tenant completes in the property and extends to any services they complete in the property in exchange for money as rent.
Now you know what this income is, you need to report your rental income and expenses on Form 1040 or 1040-SR, which you can search on the IRS website where you can find out which form is relevant to you.
Now you need to report your total income, expenses, and depreciation for the property, or if you have more than one, you need to list these incomes separately.
You also want to keep your activity records in check, as you need these to prepare your tax return.
The above information is a means of guidance if you’re interested in getting a tax break or a complete write-off, but circumstances and incomes are likely to be different, and there are many costs such as office expenses and supplies that you could claim if you’re a business owner.
If you’re a landlord, you could claim for any repairs, maintenance, or any rental income you receive, so the system has many benefits, whether your home is an investment or a workplace.