Have a Tax Question? Ask a Tax Expert
Thank you for your question.
Technially this income would be reported on form schedule E. You are subletting to a person who shares the apartment. However there may be little if any actual rental profits on which you have to pay tax. There are special rules realted to personal use property (and dual use).
I need to know the following in order to give a more complete and detailed answer.
1. Does the space used by your room mate have a seperate entrance?
2. Does the "room mate" actualy rent a seperate space, i.e. bedroom?
3. Does the room mate use or share common areas with you, such as kitchen, bath, living room, etc. (if the room mate has a seperate bath, let me know that as well).
Here is the difference:
If you and the room mate were paying rent to the landlord directly together, then you do not have to report income.
However since you pay rent to the landlord on your lease with him, and then rent space to a room mate, then you have to report that as income.
Likewise, if it is your lease and rent obligation for which you alone are obligated, and the room mate pays the landlord for you, then you still have to report it as income.
In order to avoid this as income, you and the room mate have to be legally obligated for the basic rent and pay your fair shares to the landlord.
Under your scenario you would be required to report the rent. However you are also entitled to take certain expenses.
If your room mate also pays part of your utilities, that is also considered income.
So here is how it would work.
1. Report income received from room mate on schedule E.
2. Then take the following expenses as a minimum:
a. For the bathroom and master bedroom that he uses by himself: apportion the floor space by percentage of the whole apartment. I.e. Apartment is 800 square feet, and the bath room and master bedroom are 300 square feet, Then 300/800 square feet X the amount of rent you pay for the entire apartment is expense.
b. Apportion the utilities between you and him (common area).
Because there are no separate entrances, and the property is also personal use, you can not take more than the income as expenses. (no passive loss carryovers as it would be with a regular rental unit)
Please see this publication, in particular section called personal use property or dual use property: http://www.irs.gov/pub/irs-pdf/p527.pdf
thanks for getting back to me. I am sorry, but I can not comment on the rightness, wrongness, or on what may seem preposterous about our tax laws, and the congress who passes those laws.
I am merely sharing legal information with you regarding taxes and renting to a room mate. As you may be aware, many categories of income are considered a taxable event, that may seem preposterous. For example, they got Al Capone for tax evasion, because even illegal gains are supposed to be reported.
You asked: I assume that any Lease between the two roommates (BTW I was a paralegal)would be useless from what you have said. Am I correct? ANSWER: I do not know what you mean by useless. If you mean in regard to tax ability of the income, you are correct. A written lease between roommates does document and provide conditions of the rental so that you and the room mate do not have issues later on. For example, if he or she does not pay, you will have a document with which to substantiate his or her contractual obligation to pay. Oral agreements are enforcible in court, but it is harder to do. There is an old adage, that an oral contract is only as good as the paper it is written on.
I do not know how much you are charging your room mate. BUT, in most instances, the expenses normally equal or exceed the rents. If the furnishings in the room are your furnishings, then you can depreciate them as well.
Your disability does not matter, except that if you have to make modifications to your apartment at your own expense to accommodate your disability, all or a portion may be tax deductible.