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If you rent out a bedroom(s), you must know how they are taxed. How you use the rentals determines the tax outcome, as they can be subject to three types of taxation:
- Tax-free because it’s rented out fewer than 15 days a year
- Subject to 280A vacation home rules
- Exempt from 280A
If you’re lucky enough to be exempt from 280A, there are four more tax codes to consider:
- You must prove you have the motivation to earn a profit by renting out the bedroom; otherwise you’re subject to full taxation on the income
- You must prove you materially participate in the rental to claim any losses and lower your tax liability
- You must report the income on Schedule C and pay appropriate taxes (self-employment tax)
- You may qualify for a tax deduction if your rental business qualifies for Section 199A
Bedroom rentals leave a lot of open doors and questions. Contact me today to set the record straight and ensure you file your taxes properly while getting maximum deductions.
