Renting out a room: the 14-day rule, the share you can deduct, and what to keep

Rent from a room in a home the owner lives in is taxable income, but the tax code treats it with more nuance than a side business. The nuance is worth understanding before the first tenant arrives, because the records that decide the tax have to be kept from the first month.

The 14-day rule

From 15 days onward, the rent is income, and the question becomes how much of the home's costs can be set against it.

Splitting the expenses

Costs that belong wholly to the rented space — a lock, a repair to that room, a listing fee — come off in full. Costs that belong to the whole home are split by a reasonable method, and floor area is the usual one. A 150-square-foot room in a 1,500-square-foot home is 10%.

• Mortgage interest and property tax: 10% against the rent, 90% still available as itemized deductions if the owner itemizes.
• Insurance, utilities, repairs to shared systems: 10%.
• Depreciation: 10% of the building's cost (not the land), spread over 27.5 years.

If the room is let for only part of the year, the share is reduced again by days let over days in the year.

A worked example

A room let all year at $900 a month, in a home whose annual mortgage interest is $12,000, property tax $6,000, insurance $1,800 and utilities $3,600, with a building cost of $300,000. The room is 10% of the floor area. Illustrative figures.

Short-term lets are different

A room or home let by the night through a platform is the same rules with two additions. Services beyond a bed — meals, daily cleaning, concierge — can turn the activity into a business reported on Schedule C, with self-employment tax. And most cities and many states charge occupancy tax on short stays, often collected by the platform, sometimes not.