10 Expenses You Can Deduct When Renting Out A Room August 7, 2012
Stephen Fishman wrote this great article for Inman News and wanted to share. I’ve rented a room from people and I don’t think they’ve ever taken advantage of these write-offs. I’m giving you money *and* making you money… that’s what I would call a Win-Win 🙂
Lots of people are trying to earn a few extra bucks by renting out a room in their home. This can not only be a good source of income, but result in tax deductions.
If you rent out a room in your home, the tax rules apply to you in the same way as they do for landlords who rent out entire properties. This means you get to deduct the expenses arising from your rental activity.
There is one big difference, however: You must divide certain expenses between the part of the property you rent out and the part you live in, just as though you actually had two separate pieces of property.
You can fully deduct (or, where applicable, depreciate) any expenses just for the room you rent; for example, repairing a window in the room, installing carpet or drapes, painting the room, or providing your tenant with furniture (such as a bed).
In addition, if you pay extra homeowners insurance premiums because you’re renting out a room, the full cost is a deductible operating expense.
If you install a second phone line just for your tenant’s use, the full cost is deductible as a rental expense. However, you cannot deduct any part of the cost of the first phone line even if your tenant has unlimited use of it.
Expenses for your entire home must be divided between the part you rent and the part you live in. This includes your payments for:
- mortgage interest.
- repairs for your entire home; for example, repairing the roof or furnace, or painting the entire home.
- improvements for your entire home; for example, replacing the roof.
- homeowners insurance.
- utilities such as electricity, gas and heating oil.
- housecleaning or gardening services for your whole home.
- trash removal.
- snow removal costs.
- security system costs.
- condominium association fees.
You can also deduct depreciation on the part of your home you rent.
You can use any reasonable method for dividing these expenses. It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. However, the two most common methods for dividing an expense are either based on the number of rooms in your home or based on the square footage of your home.
Example 1: Jane rents a room in her house to a college student. The room is 10 by 20 feet, or 200 square feet. Her entire house has 1,200 square feet of floor space. Thus, one-sixth, or 16.67 percent, of her home is rented out. She can deduct as a rental expense one-sixth of any expense that must be divided between rental use and personal use.
Example 2: Instead of using the square footage of her house, Jane figures that her home has five rooms of about equal size, and she is renting out one of them. She determines that one-fifth, or 20 percent, of her home is being rented. She deducts 20 percent of her expenses that must be divided between rental and personal use.
As the examples show, you can often get a larger deduction by using the room method instead of the square footage of your home.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.” He welcomes your questions for this weekly column.
Every morning I get emailed Bible verses (not pushing my religion, just saying) and this one came through a couple of days ago. I couldn’t help seeing how it was such a reminder of how hard our Clients can be on us even when they know they’re getting the very best from us and/or the market.
See, we don’t make the market or the conditions, we just interpret the market and navigate the conditions. When it’s presented to your Clients like that at the beginning of every relationship, they’re expectations are in line with what you can actually do for them. I would most preferably have this conversation when I do a Listing Appointment or a Buyer’s Consultation (which is when I get the Buyer Broker signed – and get one of those suckers Every. Single. Time.).
Do ya’ll preface ya’ll’s relationships like this? Or are you letting your Clients scream “BAD” in your face?
Your Telephobia is Killing your Business! July 27, 2012
Unlike some phobias that have weird names, I’m sure you know what this one is the fear of… the telephone! The fear of making and/or receiving calls. Now, I know that ya’ll don’t think ya’ll have a fear of receiving calls and yet if I were to call all of the Agents with Active Listings in my city right now, I bet I’d only get 1/3 of them on the phone. What the crap is that? Don’t you want to make money?!
The flip side of this coin is making the calls. It’s so funny to me how weirded out Agents get about making the calls they need to in order to grow their business.
Yesterday I asked an Agent in my office what he was doing today to build his business. He kind of gave me a blank stare before rambling on about the 80%* that he doesn’t really have to do. I asked him if he’d do me a favor and call 20 people. He flat-out said ‘no’. When asked if he’d do it the next day, he haggled for 10. Really guys?! It’s just a phone! They’re not going to hurt you… the worst they could say is that they don’t know anybody looking to buy or sell. Awesome! You’re one step closer to finding someone who does want to buy or sell.
This rant was started by the TBWS guys and their vid. Happy Friday!
Sounds silly and yet I’m serious. Have you googled your listing yet? I bet the person that wants to buy it has. They’ve map searched it, checked its walkability and researched the school district. Have you?
See, you can make a big impact by thinking local. Real local. Whatever that new homeowner would want to know about the home (from the cable provider to the nearest dog park), you should be giving them. They want to know what you know… and some of what you don’t. So, go through your current listings and start blogging (and all other forms of social media) about that which you’d want to know. Important stuff, like where’s the nearest Pinkberry?
I read a lot every morning (thank you, twitter) about housing, economics and legislation surrounding housing. It feeds my little soul. Sound weird to you? Don’t worry, you’re not the only one. But we each have that thing that challenges us every morning to make the world better than we left it and my belief of education of consumers, elected officials and REALTORS on housing related issues fuels me.
So, this morning, I saw this headline come through from DS News (Job Growth Weakest in a Year; Unemployment Rate Up) and immediately the lyrics from LL Cool J‘s Mama Said Knock You Out popped into my head: Don’t Call it a Comeback.
We added 69,000 jobs in May… far below our goal of 150,000 and our unemployment is at 8.2%. In California, those numbers aren’t much prettier – as of March, we’ve gotten our unemployment down to 11.2% from it’s 2010 high of 12.4% and our jobs aren’t being added as quickly and plentifully as we’d like. What I also harp on is underemployment. There are so many Californians that are working fewer hours with less benefits than a couple of years ago.
I know jobs exist in our Country and you might be feeling it differently where you live. In Austin, where I was two weeks ago, the paper the day I flew out was toting a 6.5% unemployment rate. I thought to myself “show offs”… I was envious of my home state’s good fortune in this economy.
2012 is the year to make your voice heard and I don’t care what side of the aisle you’re on (I’m fiscally conservative and socially open-minded), you need to vote in YOUR best interest, in our Country’s best interest.
Toughen up Buttercup! Selling your home is doing business, it’s not personal.
I can completely understand you not appreciating negative feedback from a Buyers’ Agent and/or their clients about the décor, floor plan as well as condition.
Honestly, I was the one that probably said it to you at our first meeting. You asked me what my “thoughts” were about the property and if you will recall I was open and honest (and very nice about it) and told you the changes that immediately needed attention. I know you did what you could to make these changes and improvements. Sometimes when working with a limited budget there is just so far that dollar can stretch. I get this.
Buyers that are looking for property these days, don’t get it.
They just don’t.
In a housing market where it’s a beauty contest and pricing war you have to understand that Buyer’s are out looking for something that “fits” them. Economically, lifestyle, location and yes, CONDITION. We also have to be aware of your neighbors that might “outshine and out price” us. Unfortunately, this is a fact that we have to deal with.
Knowing all of these details and the many conversations we have had regarding feedback I’m still surprised that you are thrown off kilter about some “comments”. We asked these REALTORS® to provide to us their honest opinion. Their honesty can help guide us in this journey we are taking together. Let’s not make the road any bumpier than necessary by taking these comments personally.
That’s why I’m asking you again Seller to Toughen up Buttercup! Selling your home is doing business, it’s not personal.
How to Structure a Team in 8 Minutes by @BenKinney April 5, 2012
Ben Kinney says: If you don’t have a team, real estate is just a job. Your income can stop immediately when the bad things in life happen. Learn how to build a business that will earn you income when you aren’t even at work.
If you want to learn more about building a team and taking your business to the 7th Level of Success, check out the Millionaire Real Estate Agent book or give me a call (909) 945-0607.
2012 Short Sale Industry Outlook 03/29 9am March 27, 2012
Come see one of my favorite Short Sale speakers, Jacob Swodeck, drop some great knowledge: 2012 Short Sale Industry Outlook. Event will be held at 8250 White Oak Ave., Suite 102, Rancho Cucamonga. See ya’ll there!
My Top 10 Aha’s from KW’s Family Reunion March 8, 2012
It was such a great experience! I went last year for the 1st time and was completely overwhelmed but my 1st year as a KW family member was super awesome! I walked away with pages and pages of notes but here are some of my favorite take-aways or aha’s:
- Chris Gardner said, “I made 200 cold calls a day on a rotary phone. Everyday. See how this finger is cockeyed? Next time you sit down at your desk, look at your finger. If it’s too straight, you know you ain’t doing your thing.” To see his finger, go to 5:22:
- Mark Willis, our CEO, said that “we want you to be inspired to grow your careers and to grow this company with the fierce urgency of now,” something I abbreviated as FUN.
- Russell Rhodes of the Dallas Preston Rd. MC said to “hire people with a servant’s heart. Our service to our clients absolutely comes first. When you remember that the business will come.” I’m a firm believer, Russell.
- Matt Fetick, a Mega Agent and KWU International Master Faculty, has truly taken his business mobile using virtual assistants, VoIP, Dropbox, Shoebox and Dragon Dictation.
- In Gary Keller’s Vision Speech he said that “you need to be the professional delivering the perspective and the projections so that your clients make informed decisions.”
- 72% of Buyers said they’d used their Agent again but on 9% did… what’s that say to you? KIT – Keep in touch!
- “Every minute you live, you’re betting your life on your decisions. Live is an inside (to outside) job. If you want the best life experience, put yourself together first.” – Gary Keller, KW’s Founder
- Gary Keller also said that he comes “from a long line of lethargic people. That’s why I have to make hard decisions on how I spend my time.”
- Tony DiCello, Director of MAPS Coaching, said to do the following: a) write down your income goal. Then DOUBLE it! b) Become self-aware. This gives you integrity. c) Write down the number of listings you want this year. Knowing that it takes 12 hours of prospecting to generate 1 listing, are you spending enough time prospecting? d) Go back to #1 and realize that Chris did that because his son’s life depended on it.
- I have more than ten so I’m going to string together some quotes from Gary Keller:
- If you haven’t failed, you aren’t trying.
- Fail your way to success.
- I don’t think A to B. Blow up the alphabet and only think about Z.
- I want to live the biggest life possible and fail as often as I can.
- Somehow we think the little things will add up but they don’t, they stay little. (on thinking bigger)
- No one succeeds along. (hire well and plug your holes/weaknesses)
Now, take this and do something with it. Motivate yourself toward the life you want. As The Rock says: “Boots to Asses”! Get going or Get out!
Make it a great Thursday!