Can You Itemize Rent on Your Taxes?

As homeowners tout the significant benefits of the home mortgage deduction, renters may be frustrated to learn that they are offered no similar tax break. This applies even when rental costs match or exceed the mortgage costs of an equivalent home. While renting may at times offer its own rewards in terms of increased mobility and reduced financial commitments, the tax benefits of renting are limited.

Rent Generally Not Deductible

When individuals file income tax returns, they are sometimes allowed to take deductions against taxable income for various tax equity, public policy or other reasons. One popular such deduction is the home mortgage deduction, which allows homeowners to deduct mortgage interest costs from their income taxes. Unfortunately for renters, there is no justification in the federal tax code for "itemizing" or otherwise deducting rent payments from income. Rent is treated the same as food, clothing or any other non-deductible expense.

Home Office Deduction

One circumstances in which renters may be able to deduct some of their home rental payments is when they qualify for the home office deduction. The home office deduction allows renters to deduct the percentage of their rent that is attributable to a qualified home office. Specific rules must be met for a home office deduction to be legitimate, among them is that the home office must be used exclusively for business purposes.

Renter's Deduction in Some States

Some states allow renters to deduct a portion of rental payments from their state income taxes. While this does not help alleviate those renters' federal tax burden, the renter's deduction does help provide some parity with homeowners as far as state income taxes are concerned. In Indiana, for example, renters of properties for which the owners pay property taxes can deduct up to $3,000 of rental payments from their income before paying Indiana state income taxes.

Buying vs. Renting

The inability of renters to itemize or deduct rental payments may make purchasing a home seem more attractive, but many other considerations apply to the buy vs. rent decision. Homeowners, while they can deduct mortgage interest, property taxes and some other expenses related to home ownership, are also responsible for regular maintenance and improvements that renters are often able to avoid. Home price fluctuations may, in some cases, make renting cheaper than owning, notwithstanding the tax consequences.

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