Taxes on renting a room in my home to a friend

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TSR
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Taxes on renting a room in my home to a friend

Post by TSR » Tue May 12, 2015 12:38 pm

I own a home (by which I mean that I make monthly mortgage payments on a home), and I live alone. I am considering taking on a roommate -- a friend of mine who is gainfully employed but looking for a decent place to live in a hot rental market. He would pay approximately half of my total monthly payment (incl. mortgage, insurance, taxes). It would be nice to have the extra money and the company, and I am aware of the personal/emotional pitfalls of living with someone. I'm mostly interested in folks who have dealt with the tax issues.

The first google result when you search on this subject is this link, which seems pretty good: http://www.nolo.com/legal-encyclopedia/ ... house.html

I am also familiar with this IRS publication: http://www.irs.gov/publications/p527/ch ... 1000219159+

Just a few questions for folks who have done this or know a lot about taxes:

1. Most basically, do most people report such rent as taxable income? Is it closer to just "sharing expenses"? I'm not looking for advice about breaking the law here, but renting a room to a friend has always seemed like "small potatoes" given that you are losing the same fair market value of the room that you are gaining. (I realize this is not exactly accurate -- it's just how it feels.) By analogy, is the same true if you're living with your girlfriend in a house you own rather than a friend or a stranger? Any opinions of the audit risk here?

2. Assuming it is taxable income, the advice in the NOLO link above seems like quite an accounting hassle. I do not currently keep track of any of those expenses, but it sounds like all of a sudden I'd have to keep track of my lawn-mower maintenance bills or whatever. The amount of gas I put into my weed-eater? I guess my question is, is it really worth it to do all this accounting for just a room in one's house, or do folks typically just run through the TurboTax form, do a square-footage analysis, and call it a day? Presumably this is the sort of thing that gets easier after you do it for a couple of years?

3. I live in a 2Br/2Ba house. My bedroom has a private bath, and the second bedroom has an unattached bath that is also the main bathroom that any guest would use (i.e., it would be sort of a dual-use room). Would you consider that bathroom as part of the area that is being rented? I'd be losing MOST of the utility of that room, but certainly not all.

4. Would I want extra insurance for renting to a friend? Would I NEED extra insurance? (I realize this will depend on my policy, but I'm just wondering what is typical.)

5. Any other tax/financial implications that you think I might be missing?

Thanks!

Edit to note that there is no sort of renter's credit in my state, and thus no reason for the renter to report his status.
Last edited by TSR on Tue May 12, 2015 1:31 pm, edited 1 time in total.

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ResearchMed
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Re: Taxes on renting a room in my home to a friend

Post by ResearchMed » Tue May 12, 2015 12:53 pm

Regardless of how you handle the rent and taxes (and I'm not sure how that is supposed to work), you should definitely run this by your insurance agent.

The last thing you'd want is if there is some reason for a claim, and the insurer "found out" that someone was living there (not as a guest, and it might not make a difference if there is rent paid or not; check with the insurer), and... the claim was denied because this additional person/usage wasn't declared.

Your friend would probably also want renter's insurance, at least to cover personal items (unless they are truly worth a pittance), and perhaps in case of any "at fault" liability (bookcase crashes down on someone or whatever).

We tend to be very proactive and make sure that any such issues/changes are discussed in advance with our insurance broker. Often it's a non-issue, but not always.

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Re: Taxes on renting a room in my home to a friend

Post by 123 » Tue May 12, 2015 1:08 pm

If the rental arrangement is in California there is also a "California Renter's Credit" that could possibly be claimed by the renter on their own California tax return. Just something else to think about with potential complications.
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Re: Taxes on renting a room in my home to a friend

Post by BW1985 » Tue May 12, 2015 1:16 pm

I have a good friend who owns multiple properties. He pays taxes on the income from the investment properties, but never his primary residence which he also has paying roommates in. He's never had an issue.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: Taxes on renting a room in my home to a friend

Post by celia » Tue May 12, 2015 1:22 pm

If your friend will be able to claim the renter's credit for his state income tax, he will likely be giving them your name and address and then you had better be acknowledging this rent as income. You would also want to protect yourself and claim it as income as he can easily talk and if a friend or co-worker of his mentions it to the IRS . . .

Even though he might have full access to the whole house, except for your bedroom area, Why not charge rent for, say 1/3 the square footage, and keep all the maintenance costs for yourself. He will expect to pay a fixed amount each month while the actual expenses for owning the house fluctuate. On the other hand, a tax preparer might say to keep records of all household expenses and claim half of them are for the renter. If the tax preparer starts depreciation on the house, that means a bigger profit when you sell (and potentially more taxes).

Be sure you have a written agreement that spells everything out. In other words, plan for the end of the rental stage now.
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TSR
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Re: Taxes on renting a room in my home to a friend

Post by TSR » Tue May 12, 2015 1:29 pm

Thanks for everyone's thoughts so far. I saw this in some of the googling I did and should have clarified in advance: I am in a state with no sort of tax credit for renters (and indeed no income tax at all), so there should be no reason that the renter would report this information.

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Re: Taxes on renting a room in my home to a friend

Post by miles monroe » Tue May 12, 2015 1:35 pm

i don't know the answer to this...but i would make sure you do not inadvertently convert part of your residence to rental property and lose the i/c tax exclusion when you sell the property. hopefully someone who knows the rules will answer.

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Re: Taxes on renting a room in my home to a friend

Post by cadreamer2015 » Tue May 12, 2015 1:37 pm

Be sure to check the rental laws in your state. It would probably be a good idea to get a formal rental agreement signed. Your tenant might have property rights in your home after living there for a certain amount of time - i.e. you might not be able to force them to leave without going to court and evicting them, and even then they might be able delay your eviction for several months or longer.
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Re: Taxes on renting a room in my home to a friend

Post by westbranch » Tue May 12, 2015 1:52 pm

The rental income is taxable and you would deduct related expenses including depreciation. You would lose part of the gain exclusion on the sale of personal residence based on the depreciation taken.

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Re: Taxes on renting a room in my home to a friend

Post by epitomist » Tue May 12, 2015 1:53 pm

Please use the following as a cautionary tale - I would never advocate doing this.

Twenty one years ago when I was 21, I bought a house that I lived in for 8 years. During the entire 8 years I had at least two and sometimes three roommates. My roommates paid me in cash and I did not declare any income from what they paid me. I didn't get any extra insurance. I didn't have them sign any paperwork. It went on for eight years and involved probably a dozen different roommates that were all either previously friends or friends of friends. Nothing bad happened.

Don't make the same mistake I made. Make sure to spend tens of hours calculating a tiny tax bill repeatedly. Also make sure to get various professionals involved including at least one or two Realtors, an insurance salesperson and a gaggle of attorneys on retainer.

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Re: Taxes on renting a room in my home to a friend

Post by Mingus » Tue May 12, 2015 2:03 pm

epitomist wrote: Make sure to spend tens of hours calculating a tiny tax bill repeatedly. Also make sure to get various professionals involved including at least one or two Realtors, an insurance salesperson and a gaggle of attorneys on retainer.
I couldn't have said it better.

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Re: Taxes on renting a room in my home to a friend

Post by TSR » Tue May 12, 2015 2:04 pm

epitomist wrote:Please use the following as a cautionary tale - I would never advocate doing this.

Twenty one years ago when I was 21, I bought a house that I lived in for 8 years. During the entire 8 years I had at least two and sometimes three roommates. My roommates paid me in cash and I did not declare any income from what they paid me. I didn't get any extra insurance. I didn't have them sign any paperwork. It went on for eight years and involved probably a dozen different roommates that were all either previously friends or friends of friends. Nothing bad happened.

Don't make the same mistake I made. Make sure to spend tens of hours calculating a tiny tax bill repeatedly. Also make sure to get various professionals involved including at least one or two Realtors, an insurance salesperson and a gaggle of attorneys on retainer.
I *think* I take your point. :wink:

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Re: Taxes on renting a room in my home to a friend

Post by Professor Emeritus » Tue May 12, 2015 2:17 pm

BW1985 wrote:I have a good friend who owns multiple properties. He pays taxes on the income from the investment properties, but never his primary residence which he also has paying roommates in. He's never had an issue.
Lots of criminals never get caught either , so what?

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Re: Taxes on renting a room in my home to a friend

Post by BW1985 » Tue May 12, 2015 2:22 pm

epitomist wrote:Please use the following as a cautionary tale - I would never advocate doing this.

Twenty one years ago when I was 21, I bought a house that I lived in for 8 years. During the entire 8 years I had at least two and sometimes three roommates. My roommates paid me in cash and I did not declare any income from what they paid me. I didn't get any extra insurance. I didn't have them sign any paperwork. It went on for eight years and involved probably a dozen different roommates that were all either previously friends or friends of friends. Nothing bad happened.

Don't make the same mistake I made. Make sure to spend tens of hours calculating a tiny tax bill repeatedly. Also make sure to get various professionals involved including at least one or two Realtors, an insurance salesperson and a gaggle of attorneys on retainer.
lol. Well said.
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Re: Taxes on renting a room in my home to a friend

Post by heartwood » Tue May 12, 2015 2:26 pm

epitomist wrote:Please use the following as a cautionary tale - I would never advocate doing this.

Twenty one years ago when I was 21, I bought a house that I lived in for 8 years. During the entire 8 years I had at least two and sometimes three roommates. My roommates paid me in cash and I did not declare any income from what they paid me. I didn't get any extra insurance. I didn't have them sign any paperwork. It went on for eight years and involved probably a dozen different roommates that were all either previously friends or friends of friends. Nothing bad happened.

Don't make the same mistake I made. Make sure to spend tens of hours calculating a tiny tax bill repeatedly. Also make sure to get various professionals involved including at least one or two Realtors, an insurance salesperson and a gaggle of attorneys on retainer.
Assuming your advice is sarcastic rather than to be taken at face value, much of what you deride rests firmly on the "Nothing bad happened." A relative was in a multi roommate arrangement, all with nice people. They had a small party during which two of the roommates started non-platonic activity on a 2nd story porch railing which collapsed sending the two of them to the ground with hospitalization for both and permanent disability for one. Each sued everyone in sight for medical expenses, lost wages, and disability, first the unit owner who was collecting checks (same as cash?), and also the other roommates. Didn't matter that they weren't owners. Without belaboring my story, at a minimum get insurance that covers a rental situation.

There are several other threads here that discuss the reporting of rental income, especially from family members. There are clearly a range of personal opinions on the legality of such a relationship with family. I suggest to the OP that it sounds like he's collecting income from his tenant and paying all the bills himself. That doesn't sound like 'expense sharing' to me. You can usually create a rationale in your mind to justify most things. But what's your story if something bad happens? Myself, I'd do the recordkeeping and submit the tax forms if needed. The recordkeeping can be as fine or coarse as you like.

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Re: Taxes on renting a room in my home to a friend

Post by TSR » Tue May 12, 2015 2:32 pm

Professor Emeritus wrote:
BW1985 wrote:I have a good friend who owns multiple properties. He pays taxes on the income from the investment properties, but never his primary residence which he also has paying roommates in. He's never had an issue.
Lots of criminals never get caught either , so what?
I appreciate what you're saying here, but what is the actual requirement? The problem I have is that the closest IRS publication on point acts as though you are renting "part of your property," as if it were a home office that had a discreet square footage. In fact, I would be renting shared access to my whole house, with the occasional exception of my bedroom and bathroom. How do you divide that? How do you address it on your taxes? I think what people are suggesting is that this area is sufficiently legally blurry -- and almost never results in any actual income given all the deductions -- that some people deal with it by not dealing with it, and the IRS doesn't seem to care. If that is the case, I'd like to know. If that's not the case, I'd like to know. You know?

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Re: Taxes on renting a room in my home to a friend

Post by Professor Emeritus » Tue May 12, 2015 3:11 pm

TSR wrote:
Professor Emeritus wrote:
BW1985 wrote:I have a good friend who owns multiple properties. He pays taxes on the income from the investment properties, but never his primary residence which he also has paying roommates in. He's never had an issue.
Lots of criminals never get caught either , so what?
I appreciate what you're saying here, but what is the actual requirement? The problem I have is that the closest IRS publication on point acts as though you are renting "part of your property," as if it were a home office that had a discreet square footage. In fact, I would be renting shared access to my whole house, with the occasional exception of my bedroom and bathroom. How do you divide that? How do you address it on your taxes? I think what people are suggesting is that this area is sufficiently legally blurry -- and almost never results in any actual income given all the deductions -- that some people deal with it by not dealing with it, and the IRS doesn't seem to care. If that is the case, I'd like to know. If that's not the case, I'd like to know. You know?
you always have gross income. You are simply asking the question of what you can deduct against the gross to get net income. Some things you can pro rate and some you cant. academic consultants deal with this all the time.

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Re: Taxes on renting a room in my home to a friend

Post by NOVACPA » Tue May 12, 2015 3:14 pm

I do this currently.

I rent out one of the two bedrooms.

Everything goes on Schedule E. Rent, Taxes, Interest, Insurance, Depreciation, Utilities, Repairs, etc. One half of everything is deducted as I am only renting out 50% of the unit, unless something is 100% attributable to the room (i.e. a fan, window fixtures, etc.). The remaining property taxes and interest flow through to Schedule A.

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Re: Taxes on renting a room in my home to a friend

Post by NOVACPA » Tue May 12, 2015 3:17 pm

Via Pub. 527

"How to divide expenses. If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. You can use any reasonable method for dividing the expense. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home."

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Re: Taxes on renting a room in my home to a friend

Post by inbox788 » Tue May 12, 2015 3:18 pm

We live in a complex world. Governments pass laws and regulations intended to achieve one thing, but often, the details have intended and unintended consequences. And sometimes the burden of following all the regulations is burdensome. I'm still unclear as to the right thing to do in these situations, and have come to the conclusion to avoid them if at all possible in order to ignore them and not get in trouble.

Family member renting 2nd house. Ok to ignore on tax return?
viewtopic.php?f=2&t=127624&hilit=rent

New York calls many Airbnb NYC rentals illegal
http://www.usatoday.com/story/money/bus ... /17358331/

Barter may work. Instead of rent, take groceries, repairs, car rides/sharing, etc. Sometimes you can enter into non cash agreements to avoid the bureaucracy:
http://www.wsj.com/articles/new-yorkers ... 1412988217

but not always:
http://www.irs.gov/taxtopics/tc420.html

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Re: Taxes on renting a room in my home to a friend

Post by BW1985 » Tue May 12, 2015 3:37 pm

Professor Emeritus wrote:
BW1985 wrote:I have a good friend who owns multiple properties. He pays taxes on the income from the investment properties, but never his primary residence which he also has paying roommates in. He's never had an issue.
Lots of criminals never get caught either , so what?
Read OP's question #1 - "Most basically, do most people report such rent as taxable income?". I was providing personal experience, which is what was asked for.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: Taxes on renting a room in my home to a friend

Post by rkhusky » Tue May 12, 2015 3:50 pm

inbox788 wrote: Barter may work. Instead of rent, take groceries, repairs, car rides/sharing, etc. Sometimes you can enter into non cash agreements to avoid the bureaucracy:
http://www.wsj.com/articles/new-yorkers ... 1412988217

but not always:
http://www.irs.gov/taxtopics/tc420.html
I didn't see any wishy-washiness in the IRS link. Clearly, many people take payment for all sorts of things under the table. You just have to decide whether you are okay doing that in moral sense and if you are willing to risk getting on the bad side of the IRS. Risk vs. Reward.

Note that I was once scolded by a forum moderator for suggesting a bit of a tax dodge, which is not allowed here.

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Re: Taxes on renting a room in my home to a friend

Post by TSR » Tue May 12, 2015 4:24 pm

rkhusky wrote:
inbox788 wrote: Barter may work. Instead of rent, take groceries, repairs, car rides/sharing, etc. Sometimes you can enter into non cash agreements to avoid the bureaucracy:
http://www.wsj.com/articles/new-yorkers ... 1412988217

but not always:
http://www.irs.gov/taxtopics/tc420.html
I didn't see any wishy-washiness in the IRS link. Clearly, many people take payment for all sorts of things under the table. You just have to decide whether you are okay doing that in moral sense and if you are willing to risk getting on the bad side of the IRS. Risk vs. Reward.

Note that I was once scolded by a forum moderator for suggesting a bit of a tax dodge, which is not allowed here.
Yes, I definitely don't want a tax dodge -- I'm just trying to figure out what is actually required in this situation, and how that compares with what most people do. My confusion comes from the searching I have done on this subject. Prior posts on this forum have addressed where someone's girlfriend moved in with them and pays for some of the rent. There was some consensus that this was just a "cost sharing" arrangement and was an ambiguous tax situation at best, and someone linked to this tax forum post:

http://forum.thetaxbook.com/archive/ind ... 12699.html

What I can't figure out is how the situation I'm proposing is any different than the girlfriend situation, minus the, er, collateral benefits. Further, in all of the IRS publications I've seen, I still haven't seen an example addressing this exact circumstance. They all seem to address people living in your detached basement, or AirBnB type stuff, or people moving in for short periods, NOT where two people are just splitting the house with full access for each person. (Please forgive me if I've missed one in the links you have all been kind enough to provide.) This HAS to be common enough that the IRS would address it specifically, right?

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Re: Taxes on renting a room in my home to a friend

Post by rooms222 » Tue May 12, 2015 4:33 pm

A roommate relationship has been considered more intimate legally than a normal rental situation, and that is why there remains a grey area in what is recognized by the courts as a shared household. For example Fair Housing laws about familial status, sexual orientation, and gender discrimination have not generally been applied to selecting a roommate. http://www.frutkinlaw.com/fair-housing- ... roommates/

This is also done because "roommate" can be used for both opposite sex and same sex couples where, to the outside world, they are presented as roommate relationships. Thus, I think there is generally some room given by the IRS in practice for cost-sharing when certain roommate relationships are involved. This has been my experience when former step-children are living in a house as well (i.e. the marriage is long over, but a former step-child, either a minor or a young adult is living in the home of the former spouse, but is unrelated by blood). This may also be why there is not a lot of clear tax/legal guidance in this area. If you have one roommate, as described, on its face, it is hard to distinguish from a non-traditional family, and thus, unlikely to attract much scrutiny. I think the official IRS guidance is to treat it as rental income and deductions, but in practice that is not always followed, even by the IRS.

If someone had a bunch of roommates at once, or a history of many,many roommates over the years, this might be more likely to be characterised as a business and/or rental income. Of course some of it is how you act and describe the relationship (i.e. my roommate shared the expenses vs. he paid me $550 a month to rent a room).

I think that it is true that there are potential insurance and liability issues with roommates that should be thought out in having such an arrangement.

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Re: Taxes on renting a room in my home to a friend

Post by BolderBoy » Tue May 12, 2015 6:46 pm

TSR wrote:I own a home (by which I mean that I make monthly mortgage payments on a home), and I live alone. I am considering taking on a roommate -- a friend of mine who is gainfully employed but looking for a decent place to live in a hot rental market. He would pay approximately half of my total monthly payment (incl. mortgage, insurance, taxes). It would be nice to have the extra money and the company, and I am aware of the personal/emotional pitfalls of living with someone. I'm mostly interested in folks who have dealt with the tax issues.
I think you need to get your terminology straight. In the subject line you use the word "rent". In the paragraph above you use the word "roommate". People don't generally "rent" a room to a roommate, but to a tenant.

So are you looking for a tenant (in which case you would be receiving rent from him and that is taxable income) or are you looking for a roommate with whom you will share expenses in some form and that is NOT taxable income? Will there be a lease with the usual and customary lease inclusions (security deposit, term, proscriptions, etc)? Tenants generally sign leases, roommates not so much. Once you've fleshed out the exact relationship you wish to establish with this newcomer, the rest of it should fall into place.

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Re: Taxes on renting a room in my home to a friend

Post by inbox788 » Tue May 12, 2015 7:43 pm

rkhusky wrote:
inbox788 wrote: Barter may work. Instead of rent, take groceries, repairs, car rides/sharing, etc. Sometimes you can enter into non cash agreements to avoid the bureaucracy:
http://www.wsj.com/articles/new-yorkers ... 1412988217

but not always:
http://www.irs.gov/taxtopics/tc420.html
I didn't see any wishy-washiness in the IRS link. Clearly, many people take payment for all sorts of things under the table. You just have to decide whether you are okay doing that in moral sense and if you are willing to risk getting on the bad side of the IRS. Risk vs. Reward.

Note that I was once scolded by a forum moderator for suggesting a bit of a tax dodge, which is not allowed here.
If I help a buddy use my truck and move apartments, and he gives me a six pack of beer, I hope I didn't forget to file something in my tax return. And what documentation do I need to deduct the mileage? Or does it matter if the beer is domestic or imported?

I recall a lot of college days with roommates and subletting that I don't think anyone paid any attention to these matters. If examined by the IRS, I'm sure some of these agreements would fall under these clauses and should have been subject to some regulations, but they're small potatoes and not worth bothering with.

I'm not advocating dodging any taxes where taxes are due. The "wishy-washiness" comes from the gray area between a formal barter exchange ("A barter exchange is an organization whose members contract with each other (or with the barter exchange) to exchange property or services. ") and the "informal exchange of similar services on a noncommercial basis" ("The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis."). I don't see a lot of definitions and clarifications with regard to services and in this thread related to rent vs. roommate. A formal rental agreement would clearly put it in the business side. A lot of other agreements would be subject to interpretation IMO. The more regular and more cash is involved, the more I would think the IRS would care. And the length of time of the arrangement may also play a part, like 3 days vs 3 weeks vs 3 months vs 3 years, but is that spelled out anywhere? AirBNB is dealing with this issue with every municipality choosing a different variable definition.

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Re: Taxes on renting a room in my home to a friend

Post by rkhusky » Tue May 12, 2015 8:09 pm

inbox788 wrote: The "wishy-washiness" comes from the gray area between a formal barter exchange ("A barter exchange is an organization whose members contract with each other (or with the barter exchange) to exchange property or services. ") and the "informal exchange of similar services on a noncommercial basis" ("The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.").
According to the link, the only gray area between informal barter and barter exchange is what tax forms you are required to file.

The link also gives an example of the type of barter the IRS considers important to report:
An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist. You must include in gross income in the year of receipt the fair market value of goods or services received from bartering.
BolderBoy above had some good points on the formal agreements that should be reported and the informal exchange of help and gifts. In the case of a roommate helping out with expenses, I imagine the expenses would vary from month to month, whereas rent would be a consistent amount. A roommate would help out with household chores, whereas a renter would likely not.

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Re: Taxes on renting a room in my home to a friend

Post by inbox788 » Tue May 12, 2015 8:27 pm

rkhusky wrote:The link also gives an example of the type of barter the IRS considers important to report:
An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist. You must include in gross income in the year of receipt the fair market value of goods or services received from bartering.
That examples covers 2 professionals/businesses exchanging services.

Does the IRS say anything about the roommate that buys groceries, cooks, and fixes stuff around the house and/or does some other outside help (driving/moving/delivery/transporting/etc.) in lieu of rent? Does it matter if the roommate is a cook or chef? Taxi driver?

What does the IRS say about the grandparent or aunt that's the de facto nanny? Does a cousin or a close friend alter the IRS relationship? I don't think every situation is clearly spelled out, and renting to friends/roommates is full of gray areas. The relationship may be spouse, fiance, long term living together, girlfriend, new roommate, etc. and may be treated differently, but these relationships can evolve and change. Is it sufficient to make a determination every April 15 or do you have to update them at every turn like your facebook status?

"Dear IRS, last year, we were just new roommates and she was paying rent, so we filed rental taxes. This year, we got engaged, so we're not filing rental income." Did I choose the correct event?
"informal exchange of similar services on a noncommercial basis"
These are question for the lawyers and/or IRS.
Does paying money to a friend (market price or not) as part of an arrangement to live together (roommate) constitute rent? Does it depend no what shared/unshared spaces are involved? When does it become a commercial enterprise?

I'm assuming the arrangement isn't a revolving door with new friends every other day.

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dm200
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Re: Taxes on renting a room in my home to a friend

Post by dm200 » Tue May 12, 2015 9:04 pm

My guess is that there may be multiple, "correct" ways of doing this.

This is what a friend of mine (single at the time) did when he bought a four bedroom, three bath single family house, in which he lived. While I don't know of recall the exact details, what he did (income and tax-wise) was to consider the house as 1/4 his personal residence and 3/4 rental property. He had 3 others "share" the house - each having a separate bedroom. He depreciated 3/4 of the house, considered 3/4 of utilities as rental expense and depreciated or expensed other home expenses such as furniture, etc. He declared the rent he received as income. I was one of the renters that shared the house. All of the residents had access to the common areas of the house, yard, etc.

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Re: Taxes on renting a room in my home to a friend

Post by robert88 » Tue May 12, 2015 9:12 pm

TSR wrote: Yes, I definitely don't want a tax dodge -- I'm just trying to figure out what is actually required in this situation, and how that compares with what most people do. My confusion comes from the searching I have done on this subject. Prior posts on this forum have addressed where someone's girlfriend moved in with them and pays for some of the rent. There was some consensus that this was just a "cost sharing" arrangement and was an ambiguous tax situation at best, and someone linked to this tax forum post:

http://forum.thetaxbook.com/archive/ind ... 12699.html

What I can't figure out is how the situation I'm proposing is any different than the girlfriend situation, minus the, er, collateral benefits. Further, in all of the IRS publications I've seen, I still haven't seen an example addressing this exact circumstance. They all seem to address people living in your detached basement, or AirBnB type stuff, or people moving in for short periods, NOT where two people are just splitting the house with full access for each person. (Please forgive me if I've missed one in the links you have all been kind enough to provide.) This HAS to be common enough that the IRS would address it specifically, right?
I don't understand why you're still confused: Professor Emeritus(I believe a former law professor) says the rent is taxable income, a CPA has said that it's taxable income, pub 527 says it's taxable income, and your NOLO link says it's taxable income. What more do you need? As for the girlfriend situation, I doubt many people require their GFs to pay rent in homes they own, but there's nothing in pub 527, which would exempt that income. I think the only exception is if they rent the property for less than 15 or 14 days a year.

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Re: Taxes on renting a room in my home to a friend

Post by LadyGeek » Tue May 12, 2015 9:26 pm

The OP has requested assistance to understand how to manage this situation in order to satisfy IRS requirements. Advice has been given, there is conjecture on what might happen if IRS guidelines are not followed.

Discussions of dishonest behavior or bypassing the law is totally unacceptable. To avoid further conjecture along these lines, this thread has run its course and is locked.
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