Do I need to pay taxes on income from renting rooms in my primary residence?

Yes, you do need to report the rental income, but don't worry - you can also deduct expenses! Since you're renting out rooms in your primary residence while still living there, this is considered a "shared-living arrangement" by the IRS. You'll need to report the total rental income ($2200/month) on Schedule E of your tax return. However, you can deduct expenses proportional to the rented space. Calculate what percentage of your home is being rented out (square footage of the two bedrooms divided by total square footage). You can then deduct that percentage of your mortgage interest, property taxes, utilities, insurance, maintenance costs, and depreciation. The good news is that expenses like the tree removal, fence repair, landscaping, and furniture for the rented rooms are partially deductible! Since these are shared-living expenses, you'll need to allocate based on space and usage. Keep all receipts and documentation of these expenses. Just make sure you're not deducting the same mortgage interest twice (once on Schedule A and again on Schedule E). The interest should be apportioned between personal and rental use.

I was in a nearly identical situation last year with renting rooms in my house while living there. After hours of research and stress, I discovered taxr.ai (https://taxr.ai) which literally saved me from a potential audit nightmare. Their AI analyzed my rental situation, helped me properly categorize every expense, and showed me exactly what percentage of my home expenses I could legitimately claim. The best part was it actually found several deductions I had no idea about - like a portion of my internet bill, partial depreciation on shared furniture, and even a percentage of my home insurance! It walked me through the proper allocation method for mixed-use property and even generated a statement explaining my rental situation that I attached to my return.

So I tried taxr.ai after seeing the recommendation here and wow - it was exactly what I needed for my roommate rental situation! I was totally confused about how to handle the "shared living space allocation" but the tool walked me through measuring and calculating everything. The interface asked specifically about my situation (renting rooms while living in the house) and then showed me EXACTLY which expenses to allocate and how. I had no idea I could claim depreciation on the portion of my house used for rental! It even helped me document all the repairs I did last year and properly categorize them between deductible repairs and improvements that need to be depreciated. What really surprised me was how it handled my partially-business use since I also work from home in my personal bedroom. Turns out there are specific rules for that scenario too! Honestly saved me hundreds in missed deductions and potentially thousands in audit penalties. Worth every penny for the peace of mind alone!

I had the EXACT same issue with room rentals and trying to reach the IRS for guidance was absolutely impossible. Called for weeks and could never get through. Then I discovered Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how to report my room rental income and confirmed which expenses were deductible. They explained that I needed to use Schedule E, not Schedule C, and clarified the percentage allocation method for my utilities and mortgage interest. Completely different than what I was planning to do originally! Since I had actual documentation of speaking with an IRS representative, I feel 100% confident in how I'm reporting my rental income now. No more anxiety about potentially doing it wrong!

I'm eating crow here. After dismissing Claimyr as a potential scam, I decided to try it since I was desperate for answers about my room rental situation and couldn't get through to anyone at the IRS. It actually worked exactly as promised. I got a call back when they reached an agent, and I was connected to an extremely helpful IRS representative who specifically addressed my situation. The agent confirmed that I needed to file Schedule E rather than Schedule C, and explained the exact percentage method for allocating expenses for the portions of my house I rent out. Most importantly, she clarified that I could depreciate the rental portion of my house (which I had no idea about) AND partially deduct my homeowner's insurance, which my tax software wasn't clear about. Probably saved me hundreds in taxes and the peace of mind knowing I'm filing correctly was worth way more than what the service cost. Consider me converted!

Something nobody's mentioned - if you rent out part of your home for more than 14 days during the year, you MUST report the income. But there's also a flip side: if you rent for LESS than 15 days per year, you don't have to report the income at all! This is sometimes called the "Masters exemption" since people in Augusta rent their homes during the golf tournament. This won't help OP since she's renting year-round, but it's good to know for people who occasionally rent rooms or do AirBnB.

I just want to point out that if you're using an app like Turbo Tenant, Venmo, PayPal, etc. to collect rent, there are new reporting requirements for 2025! These platforms now have to issue 1099-K forms if you receive more than $600 in a year (used to be $20,000). So the IRS will likely know about this income regardless. Also, don't forget that some cities/states have specific taxes or registration requirements for renting out rooms, even in your primary residence. Worth checking your local regulations too!

One thing I'd add that hasn't been mentioned yet - since you're spending money on furnishing the rental rooms and common areas, make sure you're tracking those expenses properly! Furniture and equipment used in rental property typically gets depreciated over 5-7 years using the Modified Accelerated Cost Recovery System (MACRS). However, there's a potential bonus: if individual furniture items cost less than $2,500, you might be able to use the de minimis safe harbor election to deduct them immediately instead of depreciating them. This could include things like lamps, small appliances, bedding, etc. Also, since you mentioned you're living paycheck to paycheck, you should know that rental losses can sometimes offset other income depending on your adjusted gross income and level of participation in the rental activity. If your rental expenses exceed your rental income (which sounds possible given your situation), you might be able to deduct some of those losses against your software job income, which could actually reduce your overall tax liability. Just make sure to keep detailed records of everything - receipts, before/after photos of improvements, maintenance logs, etc. The IRS loves documentation for rental properties!

As someone who went through this exact situation last year, I can confirm that yes, you absolutely need to report the rental income! But don't panic - the tax implications aren't as scary as they seem initially. Since you're collecting $2,200/month in rental income, that's $26,400 annually that needs to be reported on Schedule E. However, you can deduct a proportional amount of your expenses based on the percentage of your home that's being rented out. Here's what really helped me: calculate the square footage of the two bedrooms you're renting (plus their proportional share of common areas like bathrooms, kitchen access, etc.) divided by your total home square footage. Let's say that comes out to 40% - then you can deduct 40% of your mortgage interest, property taxes, utilities, insurance, and maintenance costs. Those big expenses you mentioned - the tree removal and fence repair - are partially deductible as maintenance expenses! Same with the furnishing costs, though those typically need to be depreciated over several years rather than deducted all at once. The key thing to remember is that even if you're not making a "profit," you're still generating taxable income. But with proper expense allocation, your actual tax burden might be much smaller than you think. I'd strongly recommend keeping detailed records of all expenses going forward - it makes everything so much easier come tax time!

Katherine, you've gotten some great advice here! I went through almost the identical situation when I first started renting rooms in my house. Just to add a few practical tips that helped me: Since you mentioned you're using Turbo Tenant for rent collection, make sure you're downloading monthly reports from them - this creates a clean paper trail for your rental income that matches what the IRS will see on any 1099-K forms they might issue. For your mortgage interest deduction, be extra careful not to double-dip. You'll need to split the mortgage interest between your personal residence portion (which goes on Schedule A if you itemize) and the rental portion (which goes on Schedule E). The same applies to property taxes. One thing that really helped me was creating a simple floor plan sketch with measurements and marking which areas are rental vs. personal use. This visual documentation made it much easier to calculate my percentage and would be great support if I ever got audited. Given that you're covering $1400 monthly out of pocket, you'll likely show a rental loss, which could actually reduce your overall tax liability! Just make sure you're actively managing the rental (sounds like you are) to qualify for the active participation rules that allow rental losses to offset other income. Keep every single receipt - even small maintenance items add up to significant deductions over the year!