• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Claiming a Roommate on Income Tax???

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

M

mfronczak

Guest
Person A rents out part of his house to Person B. Person A ownes the property. Person B, who pays significantly less than market value for rent, has his own bedroom and Person A and B share the bathroom, living, basement, etc. Person A, who is good friends with Person B, does not claim the rent on any income taxes.

Person B is having a great deal of financial trouble and is going to try and file for bankruptcy. However, in order to meet the "requirements", Person B wants to start paying Person A market value for rent, or about three times as much as they are currently paying. Person A wants to help, but is afraid of any tax penalties.

Questions:
1) Should any amount of rent be declared on income tax? Should Person A claim the smaller amount of rent as income?
2) If Person B files for bankruptcy and declares his rent, will he have to list who he pays rent to? Bottom line, if he declares his rent, will it send up a red flad to the IRS to look at Person A?
3) Is there anything else to know about taxes in terms of renters (in this case, roommates)?
 


Seanscott

Member
Legally, any rents received should be declared as income. You can deduct any expenses incurred as a landlord/roommate. If you pay the utilities, trash, lawnmowing, heat, etc, you could deduct 1/2 off your rental income. You can deduct 100% of repairing your tenants room (repairs only, not remodeling). There are certain things you cannot deduct at all - cable TV for example is not considered a necessity. You should check your state tax codes, as your tenant may be deducting his rental payment on his own tax form.

If I was in your shoes, I don't think I'd want to mess with the tax headache you are going to get. Especially since your tenant was paying a low rent.

Although, you may be able to come up with enough deductions to actually claim a loss for renting a room, and get a bigger tax refund.

I don't see how you can declare these things now, after not doing so. If you wish to start now, and you could make a decent profit, then keep every receipt and file your taxes legally.

Make sure it is legal to rent out a room in your area.

As far as the bankruptcy - I don't know. Hopefully someone else will come on here with advice on that!

Good luck.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top