Baltimore, MD - Mar. 3, 2017 - Renting out part of one’s home can be a good way to earn some extra money from unused space. It is important to be aware of the tax ramifications of that decision.

Normally, the expenses associated with one’s primary residence are personal in nature, and not deductible. For taxpayers who can itemize their deductions, Congress has allowed home mortgage interest and real estate taxes (as well as Private Mortgage Insurance for lower income taxpayers) to be deducted from taxable income.

However, when a taxpayer is renting out part of their primary residence to generate income, almost all expenses can be deducted. In a case where the taxpayer is renting 20% of their home to a tenant, 20% of the mortgage interest and real estate taxes, as well as 20% of homeowner’s insurance, 20% of all utilities (except for the first phone line), 20% of whole house repairs and maintenance (besides for repairs to the tenant’s area which are 100% deductible) and 20% of any condo fees are deductible as well. Also, the actual value of 20% of the home can be written off over time. The technical term for this is depreciation.

Other situations that are becoming more common these days is renting out ones house through a website such as Airbnb, or buying a vacation home and renting it out when you do not use it. There are deductions available in either situation.

If you are contemplating renting out part of a home that you use for personal residence, you will want to speak to a tax professional to get further clarity in the benefits of renting versus downsides to renting. There are situations where I would want to discuss with my client whether renting is right for them.