Can I deduct apartment rent as expense when renting out my primary house?
Title: Can I deduct apartment rent as expense when renting out my primary house? 1 Hi everyone! I currently own a pretty spacious house that's honestly way too big for just me. I've been thinking about a potential arrangement where I would rent out my house to tenants and then get a small apartment for myself instead. Obviously, I know I'll have to pay taxes on the rental income I'd be making from my house. The thing is, after running some numbers, once I pay taxes on that rental income, what I'm left with might actually be less than what I'd be paying for my apartment rent! So my question is - would I be able to deduct the rent I pay for my apartment as a business expense against the rental income from my house? Otherwise this whole arrangement doesn't seem to make financial sense after taxes. Any insights would be super helpful! Thanks in advance!
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Yara Assad
8 You generally can't deduct your personal apartment rent against your rental property income. These are considered two separate things by the IRS. What you CAN deduct against your rental income are expenses directly related to the rental property: mortgage interest, property taxes, insurance, maintenance costs, property management fees, utilities you pay for the rental, and depreciation of the property itself. Your personal living expenses (including your apartment rent) are considered personal expenses, not business expenses related to your rental activity. The IRS views your rental as a business and your personal residence as, well, personal.
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Yara Assad
•12 But what if I'm only renting an apartment BECAUSE I'm renting out my house? If I wasn't renting out my house, I'd be living in it! Doesn't that make my apartment rent a necessary business expense to generate the rental income?
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Yara Assad
•8 While I understand your logic, the IRS doesn't see it that way. The decision to move out of your house and rent it out is considered a personal choice. Your rental business doesn't require you to live elsewhere - that's your personal decision. Think of it this way: if you owned a retail store, you couldn't deduct your home rent because you need somewhere to live while running the store. Similarly, your need for personal housing exists regardless of whether you're a landlord.
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Yara Assad
16 After struggling with a similar rental property tax situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand what I could and couldn't deduct. You upload your documents and it analyzes everything for rental property situations like yours! When I was converting my primary residence to a rental, I had so many questions about what expenses were deductible. The tool flagged several deductions I was missing and explained exactly why my personal rent wasn't deductible while showing me other expenses I could legitimately claim.
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Yara Assad
•12 How accurate is it for rental property situations specifically? I've tried other tax tools before and they were pretty generic with their advice.
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Yara Assad
•7 Does it work if you haven't actually started renting your place out yet? I'm in the planning stages like OP and want to see if the numbers make sense before committing.
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Yara Assad
•16 It's surprisingly good with rental properties - that's actually one of its specialties. It caught several rental-specific deductions my regular accountant missed, like depreciation calculations and how to properly categorize repairs versus improvements. It even helped me understand the difference between rental expenses and personal expenses in mixed-use situations. For planning stages, it's actually perfect. You can run different scenarios to see the tax implications before making any decisions. It helped me calculate whether converting my garage into a rental unit made financial sense by showing the before/after tax picture - saved me from making a costly mistake!
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Yara Assad
7 Just wanted to follow up that I tried taxr.ai after seeing it mentioned here. It analyzed my potential rental conversion and showed me that while I couldn't deduct my apartment rent, there were TONS of other deductions I was missing that made the rental conversion actually profitable after taxes! It flagged that I could depreciate the property (which is huge), deduct a portion of my insurance, all maintenance, and even some travel expenses related to managing the property. The analysis was super clear about what's deductible vs. not, and now my rental plan actually makes financial sense.
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Yara Assad
20 I had the exact same question last year and spent WEEKS trying to get someone at the IRS to give me a straight answer. Kept getting disconnected or waiting for hours. Finally discovered Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c) - they got me connected to an actual IRS agent in under 45 minutes who confirmed what others are saying here. The agent explained that while personal rent isn't deductible, there are substantial deductions you get as a landlord that most people miss. The call clarity alone was worth it after weeks of frustration trying to get through the regular IRS line.
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Yara Assad
•14 Wait, so this service just gets you to the front of the IRS phone queue? How does that even work? Sounds too good to be true.
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Yara Assad
•9 I'm skeptical. Why would I pay a service when I could just keep calling the IRS myself? Do they actually provide any tax advice themselves?
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Yara Assad
•20 It doesn't put you at the "front" of the queue - it basically stays on hold for you and calls you when an agent picks up. It's just a time-saver so you don't have to stay on hold for 2+ hours yourself. When an agent is about to connect, you get a call and jump right into the conversation. They don't provide tax advice themselves - they're purely a connection service. The value is simply that instead of wasting half your day on hold, you can go about your business and get notified when an actual IRS agent is ready to talk. For complicated tax questions like rental property rules, speaking directly to the IRS gave me definitive answers.
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Yara Assad
9 Ok I take back what I said. After sitting on hold with the IRS for almost 3 hours yesterday and getting disconnected, I tried Claimyr out of desperation. Got a call back in about 40 minutes with an actual IRS agent on the line. The agent confirmed that apartment rent isn't deductible, but then gave me specific advice about section 199A deductions that might apply to my rental income and could reduce my overall tax burden by up to 20%. Would never have learned about this just searching online. Sometimes talking to an actual human at the IRS is worth it!
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Yara Assad
3 Something nobody's mentioned yet - have you considered a 1031 exchange? Instead of renting out your house, you could sell it and use the proceeds to buy a smaller residence for yourself PLUS another property to generate rental income. If done correctly, you can defer capital gains taxes.
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Yara Assad
•11 Wouldn't a 1031 exchange only work if both properties are investment properties? OP's house is currently their primary residence, so I don't think that would qualify.
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Yara Assad
•3 You're right, and that's an important distinction. For a 1031 exchange to work, the property must be held for investment or business purposes. In OP's case, they would need to convert their primary residence to a rental property first, rent it out for a period (usually at least a year), and then they could potentially use a 1031 exchange. Alternatively, OP could look into the primary residence exclusion, which allows you to exclude up to $250,000 ($500,000 for married couples) of capital gains when selling your primary residence if you've lived there for at least 2 of the last 5 years.
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Yara Assad
2 Have you looked into the tax implications of converting your primary residence to a rental property? There are special considerations around the adjusted basis of the property for depreciation purposes.
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Yara Assad
•19 Yeah this is super important! When I converted my home to a rental last year, my accountant explained that the basis for depreciation becomes the LOWER of either your adjusted basis or the fair market value at the time of conversion. This made a big difference in my depreciation calculations.
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Yara Assad
•2 You're absolutely right. When converting a primary residence to a rental property, the depreciation basis is the lower of the adjusted basis (original cost plus improvements, minus any depreciation already taken) or the fair market value at the time of conversion. This is an important point because it affects how much depreciation can be claimed each year, which is a significant tax benefit of owning rental property. Also, don't forget that land isn't depreciable, so the basis needs to be allocated between the building (depreciable) and land (non-depreciable).
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