Declaring a roommate on a house I own

[abc100]

I own a house. I have a roommate that pays me rent every month. I also pay a mortgage. I made improvements to the house in the areas they use exclusively. I do not charge them market value (rent would be a lot higher). What is the proper and best way to declare this on my taxes?

[DaveF1006]

Yes. According to agent Lina J 2018, this is how you will report.

"If you charged a rent under the fair rental price or rented for less than 14 days, you would report the income under "other income" on line 10 of your Form 1040.  It is not considered as a rental business. You do not need to report any rental income or related expenses on Schedule E. IRS considers this as a hobby. To enter, here are the steps (online):

• Sign in to your account or open your return if using Turbo Tax Desktop.
• To the right upper corner, in the search box, type in "other reportable income" and Enter
• Select Jump to other reportable income
• Next screen, Other Wages Received, select No to continue
• Next screen, scroll down all the way to the bottom, under Other reportable income, select Start
• Next screen, Any Other Taxable Income? select Yes to continue
• Then give it description as roommate rent and the amount."

Keep a record of your improvements as these will be added to the basis of your house when you sell it. My experience has been that people do not keep track of their improvements and as a result, may pay more capital gains tax as a result of this error.

As far as mortgage interest and property taxes, these can be deducted as itemized expenses on your return provided your itemized expenses exceed your standard deduction amount for 2023. Here is LinaJ2018 post.

How do I claim a roommate's rent on a home I own

[abc100]

Thank you. 

And if I shared the property with the renter and want to say I charged fair rental price (in the case that lowers my taxes more given the dollar amount of improvements is higher than the income received so it is a loss), then how do I treat the mortgage costs?

[JamesG1]

If this income is reported as fair rental price, you would create a residential rental activity and report the income under that activity.

If the portion of the house identified as rental property was 25% of the square footage of the house, then the residential rental activity would report 25% of the house-related expenses.  This could include mortgage interest, real estate taxes, utilities.  Improvements may be expensed or may be capitalized and depreciated.

In TurboTax Online, the residential rental activity may be established by following these steps:

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Wages & income.
• Scroll down to Rentals, Royalties, and Farm.  Select Show more.
• Select Start to the right of Rental Properties and Royalties

The remaining 75% may be deductible as an Itemized Deduction on Schedule A.  This would include mortgage interest and real estate taxes.

See also this TurboTax Help.

@abc100