People are always in the run to earn more money as well as some extra money in order to meet their needs. For those of you who have big homes, you have an excellent option of renting out your room and earning some extra bucks for yourself. However, if we talk about taxes there can be both the bad as well as the good news.
The worst thing is that the money that you will get from the room you have given for rent comes under taxable income which is necessary to be reported to the IRS. However, the good part and the good news is that the taxable rent amount can also come under some of the tax deductions.
Rental room incomes do come under deductible expenses
If you give a room for rent in your home, it is the same thing and the same kind of tax rules will be applied on you as they are done to the landlords who rent out their houses. So, it means it is possible for you to deduct those expenses that you get from your rent. You can deduct the tax for only that part of your home or that portion which you have given out for rent. Apart from that, if you are giving the insurance payment for the homeowner since you are giving a room on rent, so the entire cost of all these expenses is deductible.
If there is a need and you get one more telephone line installed, even the cost of that telephone and its bill comes under the deductible expense. However, if you have one telephone line which is used by you as well as your tenant, then it does not come under the deductible expense.
The person whom you rent your house can cause problem to your property
You should be smart enough to take the security deposit from your tenant before you let them enter your house and give him the room or portion for rent. This security deposit will act as a savior or a shield for you incase of any damage or loss caused by the tenant to your property.
If you will have collected the security deposit, then incase of any damage to your property, you can always deduct the security deposit and then return back the remaining amount to the tenant.
Sometimes tenants are very careless and this might cause a huge problem for the owner of the house. For example, they may leave the main door open and thieves can come in your home, or some other problem can also occur.
The rental income you receive from your tenant is taxable as well
If you wish that you want some amount of money or atleast the minute amount of money to earn from the rent then you must think that the taxes will only be a very little part from your rental income.
The tax that you will pay on such income is known as the marginal tax rate. And if you are among the 25 percent of the marginal bracket of tax, and you are receiving 800 dollars per month from your rental income, you will only be capable to keep the 600 dollars after getting rid of the taxes.
You also need to keep in mind the state as well as the local income taxes which you have to pay. However, you do not need to worry too much because you can also cut down on your rental income which is taxable with any kind of expenses which are linked to the rental expense. Some examples include maintenance, insurance, utilities, cleaning and advertising.
One another smart thing which you can do is that you can charge a very high amount of rent from tenant in order to set your rental bill optimum. But you need to keep in mind the amount of rentals going on in the market otherwise no one will pay too big an amount for the rentals.
Anything extra which you will bring or manage for your tenant will be taxable and come under tax deductible. This can include furniture costs for your tenant, telephone that you will get installed for the tenant and any other expense that you make for the tenant.