Should I claim rental income from roommates in my owner-occupied home for taxes?

But if the payments are just through Venmo and not reported anywhere, how would the IRS even know? I'm curious because I'm in a similar situation. Also, do you need receipts for all the expenses you mentioned?

The IRS can discover unreported income in several ways. They can review bank deposits during an audit, or Venmo transactions could potentially be reported to them in the future. Venmo business accounts already report to the IRS, and the rules around peer-to-peer payments are getting stricter. For expenses, yes, you should keep receipts and documentation for everything you deduct. This includes mortgage statements, utility bills, repair invoices, etc. The more organized your records, the better position you'll be in if questions ever arise. Document everything, especially for major expenses like home repairs.

How accurate is it though? I've tried tax software before that missed stuff. Does it actually work for cases like this where it's not a separate rental property but rooms in your own house?

Did it help you figure out how to handle the Venmo payments? That's what worries me the most since the new $600 reporting threshold.

It's surprisingly accurate. I was skeptical too but it caught all the nuances of renting rooms in my primary residence vs having a separate rental property. It knew exactly how to handle the proportional deductions and even explained the difference between direct rental expenses (100% deductible) and shared expenses (partially deductible). For the Venmo payments, it actually had specific guidance on this. It explained how to properly report the income regardless of payment method, and gave me options for tracking these payments properly. It also explained the new $600 reporting threshold and how it might affect me going forward, with recommendations for documentation I should keep just in case.

Wait, how does this actually work? I thought it was impossible to get through to the IRS without waiting for hours. Are they just holding your place in line somehow?

This sounds like a scam. How could they possibly get you through faster than anyone else? The IRS phone system is first come first served.

It's not holding your place in line exactly. They use an automated system that continuously redials the IRS using their optimal calling algorithm until they get through. Once they're connected, they immediately transfer the call to you. You just get a text when they're about to connect you. It's definitely not a scam. They only charge you if they actually connect you to an IRS agent. I understand the skepticism - I felt the same way until I tried it. The IRS phone system may be first come first served, but getting through the initial automated system is the hard part, especially during tax season. Their system just handles the redial process so you don't have to waste hours with your phone on speaker listening to hold music.

Thanks for the straightforward advice. I didn't realize I could deduct so many things. Do you know if I need to keep track of every little expense separately for the rental portion? Like if I buy cleaning supplies, do I need separate receipts for stuff I use in the rented areas?

You should keep receipts for everything, but you don't necessarily need separate purchases for the rental areas. For mixed-use items like cleaning supplies, just track the total cost and then apply your rental percentage when taking the deduction. For your situation, I'd recommend keeping a simple spreadsheet with all expenses that could be partially allocated to the rental portion. Note the total cost and what percentage is rental-related. For bigger items like repairs or furniture specifically for the rental rooms, definitely save those receipts separately as they might be 100% deductible against your rental income. The more organized your records are, the easier tax time will be and the better protected you'll be if you're ever questioned.

What kinds of things did your cousin try to deduct that triggered the audit? Was it the amount of deductions or specific items the IRS flagged?

It wasn't any specific item but the ratio of his deductions to the income reported. He claimed that 75% of his house was rented out (it wasn't) and then tried to deduct 75% of literally everything - his car, his phone, his gym membership, restaurant meals with his "tenants" (friends), etc. The IRS asked for the floor plan of his house and proof of the square footage calculations. When they figured out he was really only renting out about 30% of his house, they disallowed a bunch of deductions and hit him with penalties. Keep your deductions reasonable and aligned with reality and you should be fine.

This is really helpful advice! I'm new to this whole situation and honestly had no idea about all these deductions. When you mention calculating the percentage based on square footage, do you literally measure each room and divide by the total house square footage? And for things like utilities - do you need to track usage separately for the rented areas, or can you just apply that same percentage to the whole bill? I want to make sure I'm doing this correctly from the start rather than trying to figure it out later when I'm scrambling to file taxes.

@Brian Downey Yes, you typically calculate the percentage based on actual square footage. Measure the rooms your roommates occupy including (their share of common areas like kitchen, living room if they have access and) divide by your home s'total square footage. Some people use number of rooms, but square footage is more accurate and defensible. For utilities, you can apply that same percentage to the entire bill - no need to track separate usage. Same goes for things like internet, trash service, etc. The IRS understands these are shared expenses. Just make sure to document your calculations clearly. I keep a simple diagram showing room dimensions and the math, plus photos of each rented space. If you re'renting out 2 bedrooms that are 150 sq ft each, plus they share common areas, and your house is 1,800 sq ft total, you might end up with something like 25-30% as your rental percentage. The key is being consistent and reasonable with your calculations. Don t'try to inflate the percentage by including spaces they don t'actually use.

This is really reassuring to hear from someone who's actually been through this! I'm definitely leaning toward reporting everything properly now. Can you give me more specifics on how you calculated that 35% figure? I'm trying to figure out if I should include shared spaces like the kitchen and living room in my calculation, or just the bedrooms my roommates actually sleep in. Also, when you mention depreciation on the rental portion - is that something I can start claiming this year even though I've only been renting for 8 months, or do I need to wait until next year? I want to make sure I'm maximizing my deductions legally but not overdoing it.