An old trend from the late 1800s and early 1900s is again resurfacing. Census experts say that the reason for the resurgence in individual room rentals is a wobbling economy and high unemployment rates. In fact, according to statistics, between 2008-2010, 7.3 million people were unrelated adults living in someone else’s home.
If you’ve been thinking about smaller scale rentals like this, such as renting out one of your rooms, there are a few things you can do to make sure it’s a positive experience for all involved. There are a few legal and tax related things to know, but also, lifestyle issues that can arise.
Your first stop is going to be the US Department of Housing and Urban Devlopment’s website to take a look at your state’s laws on the subject. Though lodgers, or boarders are treated a bit differently, often, they have exactly the same rights. Protecting yourself means making sure you are not in violation of those rights, but also, making sure you know your local zoning laws. You can find that out by checking in with a county administrator or your local city hall.
Tax Rules When Renting Out a Room
Because rental income is considered taxable income, you can offset it by deducting some costs. You’ll need to first measure how much square footage is being used just by that lodger. Basically, that’s just the room size they are in and any other places that you designate for their use exclusively. You’ll also want to measure those shared areas, as well.
Second, look at the measurements of the shared areas and divide them by the number sharing them. For instance, if the living room is considered a shared area, and you have 5 people in the house but 1 is a boarder- divide that room’s square footage by 5.
You’ll then add that to the square footage used exclusively by your tenant. So, say your boarder is using 25% of the home, you can then deduct 25% of mortgage interest, insurance, utilities, maintenance and repairs, janitorial work, cable and internet, property tax, and security. You can also deduct the cost of repairs to anything your tenant broke, as well as things for their benefit, like painting the room or adding a bathroom to it. Additionally, you can take depreciation on 25% of your home’s value, but only the home and not the lot or acreage around it.
House Rules When Renting Out a Room
This is where some organization ahead of time is going to be critical. You’ll want to cover anything that may cause conflict. The biggest areas that become problematic are:
Parts of the home not open to the boarder
In room sanitation
Meals and food
It’s really important to make sure that your rules are in line with laws concerning discrimination, but also that they are somewhere in writing. It’s best to have a set typed and signed before you move a boarder in, along with your lease.
Finding the Right Boarder
When you’re renting out a room in your own home it is more important than ever to make sure you screen all applicants carefully. Also, don’t assume that a friend or relative is automatically going to be a fantastic tenant. Many have made that mistake and it often doesn’t end very well. Having to evict someone is hard enough, now imagine having to live with the person during that sometimes 90 days long process. Get and check all references very carefully.
There’s a bit of temptation or an illusion that renting a room doesn’t require as much organization as would renting the whole house or apartment. This is not true. Though you might not have to mail out, there’s still a bit of billing and organization involved. Careful record keeping helps not only in the event of something bad happening, but also at tax time. So, even if you are just renting out a room, we have plans that will work for you, keep you streamlined and give you one less thing to think about.