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If I own an apartment with a mortgage and I have a flatmate

who pays me rent for...
If I own an apartment with a mortgage and I have a flatmate who pays me rent for their room, do I pay tax on the rent minus the mortgage payments? If the mortgage payments are larger do I pay nothing?

Thanks!
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Answered in 3 minutes by:
8/1/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

In your rental scenario, you are not operating with a profit motive - you're operating to offset your monthly expenses

MyVirtualCPA :

You will claim the rent as income, but you can deduct any expense related to that rental - the portion of your insurance that is attributable to the rental, the portion of the utilities that is attributable to the rental, any repairs attributable to the rental

Customer:

Hi, I am renting out two spare rooms to help pay for the mortgage, is that what you mean?

MyVirtualCPA :

Plus, depreciation on the part of your house that is rented out.

MyVirtualCPA :

However, you can only deduct up to the amount of your rent.

Customer:

and the mortgage interest?

MyVirtualCPA :

Yes, that is what I mean - in response to your response

MyVirtualCPA :

Yes, but you will probably be deducting the mortgage interest anyways on your house

Customer:

you mean I will already be deducting mortgage interest from my annual income, regardless of the rentors, so what is left to offset against the rent are these other expenses?

MyVirtualCPA :

yes, those other expenses - insurance, repairs, depreciation, utilities, etc

MyVirtualCPA :

but, you can only deduct expenses up to the amount of your rent

Customer:

and so all of the escrow payments would be included in that?

MyVirtualCPA :

Yes, that is correct

Customer:

if I was going to but another rental is it easier to do this through a company structure then?

MyVirtualCPA :

No you will not do this through a company structure. It will make your tax reporting more complex, and this isn't a business

MyVirtualCPA :

Oh...if you buy another rental. I'm sorry

Customer:

that's right

MyVirtualCPA :

Yes, if you buy another rental - you don't have to have a company structure. You can report the income and expenses on schedule E of your tax return

Customer:

ok, thank you

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
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Thanks, Max for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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