Taxes: What if I Rent Out My Home and Live in Another Rental?
Becoming a landlord and leasing out your home has the effect of making you a small business owner, yielding a variety of tax deductions. For this reason alone, it might make financial sense to become both a landlord and renter. While few deductions are available to tenants, the variety available if you lease your home is likely to make the overall decision a net gain. The only real drawback is the potential headache involved in finding quality tenants and keeping them happy.
Landlord Advantages
The list of tax advantages to be gained by renting your home out is quite long. A big one is interest paid on loans used for repairs on the property, as well as interest paid on credit cards used to purchase products or services to maintain or improve the property. Depreciation is another good tax deduction. Residential real estate property laws dictate that you can depreciate the cost of the the property over the next 27.5 years.
Tenant Advantages
The list of tax advantages a tenant can claim is not impressive. As a non-property owner, the best he can hope for is to deduct property taxes, if the lease agreement requires him to pay them, and casualty losses if the premises are used for a home. Strictly as a tenant, that's about all that exists in the way of tax benefits, unless you use some part of your rental as a home office since, as a landlord, you naturally will need a place to devote time to business operations concerning the house you're leasing out.
Home Office
By setting aside a dedicated area in the rental you live in, you set yourself up to claim a slew of IRS-approved tax deductions. Factors the government considers when allowing this type of deduction are that the designated area is for the regular and exclusive use for conducting business, and that it is your principal place of business. Doing your accounting and interviewing tenants there should fit the definition nicely.
Considerations
The only real downside to deciding to rent your home out is to contemplate whether you have the stomach to be a landlord. It's not all fun and games. Between late-night complaints about low water pressure and tardy rent payments, you might wonder why you ever wanted to do it in the first place. Keep in mind that property management services take care of all this for a reasonable fee that runs anywhere from 6 to 10 percent of rent.
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