Tax Benefits of Renting Your Residence

Maicher CPA Pllc provide a full range of tax services to help businesses and individuals succeed.   Reducing your tax bill by maximizing deductions is always one of our objectives. Reducing your tax bill by maximizing deductions is always one of our objectives.  Unfortunately, The Tax Cuts and Jobs Act has reduced several of the usual tax deductions of homeownership, including capping: the deduction for state/local property taxes to $10,000 and the deduction of interest on mortgages up to $750,000 on homes purchased between 2018 and 2025.   The good news: as a homeowner, you can still gain certain tax benefits by renting out your residence for as little as 15 days annually. 

What are some tax benefits? 

1.) Deducting Property Taxes.   If you rent out your residence for at least 15 days a year, you can take a deduction on rental income.  For example: Suppose you pay $3,000 per month in property tax, or $36,000 yearly, exceeding the $10,000 ceiling.   One way to reduce this problem is to rent your residence out for three months which will allow you to deduct 25% of your property tax, or $9,000 plus you can still deduct $10,000 in property tax, free and clear.

2.) Deducting Mortgage Interest on Your “Rental.”  While a non-rental residence is subject to the $750,000 mortgage interest ceiling, a rental residence is not subject to that ceiling.  The mortgage on your residence can be several million and you can still deduct all interest on it. Suppose you live in your residence for part of the year and rent it out for the rest?  You can get a tax benefit. Say you purchase a home for $1 million in 2019 and pay 5% interest on a 30-year loan. That means you pay $50,000 annually in interest. You can deduct 75% of that, as a resident.  If you rent out the residence for three months, then a quarter of that interest, or $12,500, is deductible.  

3.) Deducting Other Expenses. You can deduct the costs of certain materials, supplies, repairs, and maintenance made to your rental property to keep your property in good operating condition.

Takeaway: Subject to certain rules, as a homeowner, you can gain certain tax benefits by renting out your residence. At Maicher CPA Pllc, our professionals provide effective and ethical tax return preparation services to individuals and businesses.  Contact us today for an appointment.  

Sources: 

“Know the Tax Facts About Renting Out Residential Property,” IRS Publication.  (Updated August 2019).  

“Topic No. 415 Renting Residential and Vacation Property,” IRS Publication.  (Updated August 2019). 

“How To Get Good Tax Breaks By Renting Out Your House,” Forbes.  (Mar 27, 2019).