Is rental income taxable if all of it goes towards paying my mortgage?

Thanks for the detailed response! I had no idea about being able to deduct a portion of my expenses. So to make sure I understand correctly - I report all the money my roommates pay me as income, but then I can deduct 3/4 of my mortgage interest, property taxes, etc. since they're occupying 3/4 of the house? What about utilities? We split those four ways too. And what's this about depreciation? I don't really understand what that means.

Yes, you've got the basic idea right. You'll report all the rent payments as income, then deduct expenses for the portion used for rental. The 3/4 allocation sounds reasonable since 3 out of 4 people in the house are renters. For utilities that you split, you can deduct the portion that applies to the rental - so if you're paying the full utility bill and they're reimbursing you their share, you'd deduct 3/4 of the total. Regarding depreciation, this is a tax deduction that accounts for the wear and tear on your property over time. The IRS lets you depreciate residential rental property over 27.5 years. You'll need to determine your property's tax basis (usually purchase price plus improvements minus land value), multiply by the rental percentage (75% in your case), and divide by 27.5. This gives you your annual depreciation deduction.

That sounds useful, but does it handle situations where rooms are different sizes? My house has a master bedroom that I use and two smaller bedrooms I rent out. Would it still be as simple as saying 2/3 is rental use, or does the square footage of the rooms matter?

I'm always skeptical of tax services. How does this compare to just using TurboTax or H&R Block? Those already have rental property sections. What makes this one worth trying?

For rooms of different sizes, the system actually helps you calculate based on square footage if needed. You can input the total square footage of your home and then the square footage used exclusively by renters, and it'll give you the appropriate percentage to use for deductions. It's much more precise than just doing a headcount split if your rooms vary significantly in size. Compared to TurboTax or H&R Block, the main difference is that this is specifically designed for rental situations including house hacking like yours. While those other services have rental sections, they don't provide the same level of guidance for first-time landlords. The document analysis feature saved me hours of figuring out what expenses qualified and what percentage I could claim, plus it helps you set up a system for tracking throughout the year instead of just at tax time.

Wait, you have to pay to talk to the IRS? Isn't that literally what our tax dollars are for? How does this service even work? Seems sketchy that you'd need to pay a third party just to talk to a government agency.

I don't believe this works. I've tried EVERYTHING to get through to the IRS and nothing works. They're deliberately understaffed so they don't have to help regular people. You're telling me this magical service somehow jumps the queue that everyone else has to wait in? Yeah right.

You don't pay to talk to the IRS - the service does the waiting on hold for you, then calls you when an actual human at the IRS picks up. It's basically like having someone else sit on hold instead of you wasting your entire day listening to that terrible hold music. It's definitely not a scam. The service uses an automated system that navigates the IRS phone tree and waits in the queue, then alerts you when it's your turn to talk. It doesn't "jump the line" - it just handles the painful waiting part so you don't have to. I was skeptical too until I tried it and got through in 37 minutes when I had previously spent 3+ hours on multiple days trying to reach someone.

I hadn't even thought about state taxes! I'm in Michigan - does anyone know if they handle rental income differently than the federal government? Do I need to register as a landlord with the city or anything?

Michigan generally follows the federal tax treatment for rental income, so the same income and deductions you report on your federal Schedule E will typically flow through to your Michigan return. However, some cities in Michigan do have additional requirements. For example, some cities require landlords to register their rental properties and obtain a certificate of compliance or rental license, even for informal arrangements like yours with roommates. This varies by municipality, so you should check with your local city or township office. These aren't tax requirements, but landlord registration requirements - and some places do charge fees for this.

This is such an important point! I had to switch to a landlord policy when I started renting rooms in my house. It was about 15% more expensive than my regular homeowner's policy, but absolutely worth it for the coverage. You should definitely call your insurance company ASAP.

This is excellent advice about record keeping! I'm just getting started with this whole roommate situation and already feeling overwhelmed by the paperwork side of things. Do you have any recommendations for apps or software that can help automate some of this tracking? I'm worried I'll forget to log something important or mess up the percentage calculations. Also, when you mention improvements vs. maintenance expenses - can you give some examples of what counts as which? I'm planning to replace some old carpet in the rental rooms and wasn't sure how to handle that tax-wise.