With rent prices skyrocketing these days, nearly 13.5% year over year, you may be looking to save on costs in any way you can. You may even be wondering if buying will get you a better deal in the long run. And when the tax year comes to an end, you may find yourself questioning if rent is tax deductible. And if so, how much of your rent is tax-deductible?
Unfortunately, rent is not tax-deductible. And, you can’t claim all of your rent on your taxes either. However, you may be able to claim part of your rent if you work from home. Even then, there are specific requirements you need to qualify for.
Even if you don’t meet those requirements, there are some tax credits and other deductions you may be eligible for. Keep reading to find out why isn’t rent tax-deductible and what other tax benefits you may be able to claim instead.
Is rent tax-deductible?
As mentioned above, rent is not tax-deductible. Even though rent is expensive and you may be spending upwards of 30-50% of your monthly income on your rental budget, you don’t get the same tax benefits as a homeowner. Many homeowners can deduct property taxes, mortgage interest, and mortgage insurance, among other homeowner tax deductions, during tax season.
So, why isn’t rent tax-deductible?
The short answer is that your landlord or rental property owners already pay property taxes on your apartment or rental home. In other words, they own the rental property and are the only ones who can receive tax breaks. They receive a rental income each month and need to include that rental income on their taxes. And two people – your landlord and yourself – can’t claim the same tax break.
It’s not all bad news, though. Tax deductions for homeowners are often no more than the standard deduction, so they don’t necessarily receive more benefits than renters. And while you can’t always deduct rent on taxes, you may be eligible for a renter-specific tax credit or other rental deduction.
What is a renter’s tax credit?
A renter’s tax credit is a cash credit you can receive at tax time if you meet certain qualifications and live in a state that offers a renter’s tax credit. Many states offer renter’s tax credits to make housing more equitable and affordable, but keep in mind not every state does.
The amount of money you can get for a renter’s tax credit also depends on where you live. For example, if you live in California, you can receive a $60 renter’s tax credit as an individual or a $120 tax credit if married. Meanwhile, the maximum credit in Wisconsin comes in at $1,168. Yet other states like Massachusetts offer you a credit based on the rent paid during the year, up to a maximum amount.
What states offer a renter’s tax credit?
Various states offer renter’s tax credits to different groups of people. To find out if your state has a renter’s tax credit, you can check out the list below. Before you file your taxes, you may also want to double-check with a local tax attorney or the accountant filing your taxes to ensure that your state offers a renter’s tax credit and that you qualify for it.
Also, note that tax credits can take a while to process, and you may have to take extra time to prove your eligibility. You’ll also probably have to provide additional paperwork at tax time, such as a Certificate of Rent Paid from your landlord.
Renter’s tax credit qualifications
Rules for renter’s tax credits vary by state, but some tax rules stay pretty much the same across every state. If you meet the following criteria, you may be eligible for a rent tax credit:
- Your name has to be on the lease
- You have to pay rent on the property
- You can’t be listed as someone else’s dependent on their tax return
- You must be a resident of the state where you’re renting
- Your rental property owner has to pay taxes on the property you’re renting from
Some states, like California, require that you stay below a certain income threshold to qualify for a renter’s tax credit. Other states have rules about the number of people in your household, how many months of the year you spend in the state you file in, whether or not you are disabled, and more.
States that offer renter’s tax credits to seniors and the disabled
Several states offer tax credits to seniors, usually defined as someone aged 60 or 65 and above. Meanwhile, these states also offer renter’s tax credits to residents who are disabled, regardless of their age.
- New Jersey
- North Dakota
- Rhode Island
States that offer renter’s tax credits to lower-income households
Many states try to make housing more equitable by offering a renter’s tax credit to residents whose monthly rent takes a certain percentage of their income. These states are:
- New Jersey
- New York
- Washington DC
Additionally, Indiana offers a renter’s tax credit regardless of your income. For each of the renter’s tax credits listed above, remember that there are specific eligibility requirements you’ll have to meet.
Options for rent tax deductions
Let’s say your state doesn’t offer a tax credit, or you don’t qualify for any of the above renter’s tax credits. Although you may not be eligible for a renter’s tax credit, you may qualify for a rent tax deduction, depending on your circumstances. The rent tax deductions listed below apply to all states.
A rent tax deduction differs from a renter’s tax credit in that a rent tax deduction is a deduction, while the other is a tax credit. A tax deduction helps lower your taxable income. A tax credit helps reduce the tax you owe or increase your tax return.
Many people may qualify for a renter’s tax deduction depending on where they live. Meanwhile, people nationwide who work from home, operate a business out of their home, or sublease their space may be able to claim a home office or sublease deduction.
First, if you work from home, you may be able to claim part of the apartment space that you use for work. Or, if you sublease part of your apartment, you may be able to claim a deduction as well. In both scenarios, you can only deduct a portion of your rent — either your office space or the space used by the person subleasing. For specific requirements on each of these deductions, keep reading below.
What is a home office deduction?
Probably the most common deduction renters claim is a home office deduction, especially since more people are working at home now.
You may be eligible for a home office deduction if you operate a business out of your apartment or work from home. Keep in mind that you probably can’t run a business from your rental property without your landlord’s permission and go through a couple of other steps.
Home office deduction qualifications for the self-employed
To be eligible for a home office tax deduction, you must be self-employed and operate a business or workshop from your rental property, whether it’s an apartment, house, or condo. And, you can’t claim your whole apartment. You can only claim the square footage used for your dedicated workshop or office space. Last, your home office or workshop space must be your primary place of business and a space dedicated to your business. In other words, you can’t use the space for different purposes and claim it on your taxes.
In addition to home office deductions, you may be able to claim business expenses such as certain supplies or utilities that you use for work on your taxes. For example, if 20% of your Wi-Fi usage goes toward work, you can claim 20% of your Wi-Fi expenses as a deduction. To ensure you file correctly, consult your tax professional, a tax attorney, or another certified tax expert.
You may also be able to deduct certain business expenses at tax time if you aren’t self-employed but work from home for a company or as a freelancer. You can also claim a home office deduction on your taxes if you meet the following criteria.
First, you must have a dedicated home office space used only for work purposes. Next, your home office must be a requirement of the company where you work, it must be necessary for you to do your job, and it has to be essential for your employer’s business to function.
Also, you have to pay for any expenses that you claim. So, your employer can’t pay your rent if you want to claim any square footage in your apartment on your taxes. And, you have to have a valid reason for working from home, such as your company not providing you with an office space. Again, check with your tax professional to make sure you file correctly.
Tax deductions for those subleasing
Subleasing is when someone else takes over part of your lease at a rental property. For instance, if you have a two-bedroom apartment, condo, or house, you can sublease your second bedroom to someone else. Before you sublease, though, make sure your state and apartment building allows it.
If you sublease a room, you can probably deduct certain expenses, like a portion of rent and utility costs, at tax time. Let’s say you rent a two-bed, two-bath condo and decide to rent out the second bedroom and bathroom a few months into your lease. You and your roommate share all common areas, but bedrooms and bathrooms are not shared. You can then deduct a certain amount of your rent, utilities, renters insurance, and other expenses from your taxes.
Final thoughts on renting and taxes
Taxes are confusing and as expenses around the country continue to rise it’s natural to wonder if rent is tax-deductible. While you can’t deduct rent on taxes in most cases, there are some situations in which you can receive a renter’s tax credit or a rent tax deduction.
First, you may be eligible for a renter’s tax credit worth up to $3,000 in some states if you meet certain requirements. How much money you get for a renter’s tax credit usually depends on where you live, like if you have an apartment in Portland, OR, or a rental house in San Diego, CA, your household size, your income, and a handful of other factors.
You may also be able to claim a rent tax deduction if you have a home office or if you sublease to someone else. In these scenarios, you can deduct the rent, utilities, and other expenses that go toward your business or that your sublessee uses.
Check in with a tax attorney or other professional at tax time. They can help you make sure that you are filing correctly and that you are receiving any and all benefits you are eligible for.
Redfin does not provide legal, financial, or tax advice. This article is for informational purposes only, and is not a substitute for professional advice from a licensed attorney, financial advisor, or tax professional.
The post Is Rent Tax-Deductible? Tax Deductions You May Qualify For appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.
- Originally posted on Redfin