Renting out a spare room is at times favorable to leasing your entire property. You’ll discover it provides more flexibility and renting several rooms can frequently be more lucrative than renting the entire home under one lease.
If you find yourself with an extra room that you don’t use, renting it out might offer the solution to some extra money.
Nevertheless, it’s important you check your local and state county laws to ensure compliance with license, housing, and fee requirements. Here’s what you can expect from renting out a spare room.
The most apparent benefit of renting out a spare room is the extra revenue, which you could put toward mortgage repayments, property upgrade, or simply enjoy some extra spending cash.
You need to establish whether you want a steady long-term tenant or short-term ones through platforms such as Airbnb.
You’ll find that a long-term tenant offers reliable income and stability, but could lead to difficulties if you experience issues. Conversely, short-term renters can generate higher income throughout the rental period and a varying tenant cycle.
Besides an income stream, a spare bedroom can generate other benefits. For instance, a long-term tenant will provide company if you live alone. An extra person may also be a comfort especially for elderly homeowners.
A tenant may even offer assistance with household chores such as lawn mowing provided you’ve agreed beforehand. Furthermore, a tenant could help you socialize more. In fact, you might find yourself with a new circle of friends.
Bear in mind that you’ll need to spend some extra time interviewing prospective candidates in order to find a good match.
Tax Issues When Renting Out a Room
Although this route will generate some income, it’s important to beware of the resulting tax implications. For instance, the rent you obtain is taxable income, so you should report it to the IRS.
Fortunately, you can offset the taxable income partly or wholly by tax deductions you’re entitled to. When you rent out a spare room, the tax rules apply in the same way as they do for those who rent out their entire properties. Therefore, you get to subtract the expenses originating from your rental activity.
However, there’s one major difference: you should divide some expenses between part of the rental property and the part you reside in as though you actually have two separate properties.
You can fully subtract (or where appropriate, depreciate) any costs just for the rental room-for instance window repair, painting, or installing drapes. Ensure you use a reasonable means for splitting these costs.
For instance, it may be sensible to split the cost of some items depending on the number of people using them. However, the common techniques for splitting an expense are based on your home’s square footage or the number of rooms.
Expenses You Can Deduct from Renting Out a Room
If you purchase cleaning supplies or pay a professional for cleaning the rental room, you can deduct these expenses. Other maintenance expenses related to the rental are also deductible.
If you have to pay additional insurance on your home because of renters, you can deduct the additional cost.
Regardless of the reason for renting out a spare room, you must consider the advantages and drawbacks while considering the expenses to expect as well. If you’re considering this route in the future, this guide will prove useful.
For more information on what to expect from renting out a spare room, contact us at Apartment Agents or leave a comment.