Should I claim rental income from roommates on my owner-occupied home?
I recently purchased my first home and have a couple of friends renting rooms from me to help with the mortgage. Last year I made around 70k from my regular job and don't have any write-offs except for my house and 401k contributions. I collected approximately $27k in roommate rent throughout the year. The mortgage interest I paid was about $12,400. I claimed 0 allowances on my W-4 all year. My roommates pay me through Venmo, so the deposits in my bank account don't specifically indicate that it's rental income. I'm wondering if I legally need to claim this as income on my taxes? Or could I just not report it and avoid paying what I assume would be around 25% in taxes on this money? The IRS wouldn't know it's rental income from looking at my bank statements, right? This is my first time dealing with this situation and I'm trying to understand my options and obligations. Any advice would be appreciated!
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Diego Castillo
You should definitely report the rental income. What you're describing is considered rental income even though it's your primary residence, and yes, it needs to be reported on Schedule E of your tax return. The good news is you can deduct expenses related to the rental portion of your home. Since you're renting out rooms, you'll need to determine what percentage of your home is being rented. For example, if the rented rooms make up 30% of your home's square footage, you can deduct 30% of expenses like mortgage interest, property taxes, insurance, utilities, repairs, and depreciation. Keep in mind that even though payments come through Venmo, that doesn't mean the IRS won't know about this income. Venmo and other payment platforms report to the IRS when certain thresholds are met, plus not reporting income is tax evasion and can lead to penalties, interest, and potentially more serious consequences if you're audited.
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Logan Stewart
•But what if the roommates are just "contributing to household expenses" rather than paying rent? I've heard there's a difference between having tenants and having roommates who share costs. Does that change the tax situation?
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Diego Castillo
•That's a common misconception. The IRS doesn't care what you call it - if someone is paying you to live in property you own, that's rental income. "Contributing to household expenses" might work if you're all co-owners, but if you're the sole owner receiving payments from non-owners, the IRS considers that rental income. Let me clarify about the "expense sharing" argument: If you had a roommate who was splitting bills where their name was also on the utilities and they paid their share directly, that portion wouldn't be income. But money they give you to live in your property is rental income regardless of what you call it.
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Mikayla Brown
I was in a similar situation last year and I found this amazing tool at https://taxr.ai that really helped me figure out exactly what I needed to report and what I could deduct. It analyzed my situation and showed me that I could actually deduct a portion of my home expenses against the rental income, which significantly reduced my tax liability. The tool asked me questions about which parts of my house were being rented, calculated the percentage, and then figured out exactly what portion of my mortgage interest, property taxes, utilities, and even depreciation I could claim. It even helped me understand how to properly document everything in case of an audit. Definitely saved me more money than if I'd just ignored the rental income or reported it without the deductions.
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Sean Matthews
•Does it handle situations where you're renting out rooms sporadically, like only part of the year or on weekends? Also, can it help determine what counts as a "fair market rent" vs just cost sharing?
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Ali Anderson
•Sounds interesting but I'm skeptical. How does it handle the division between personal use and rental use? Does it factor in common areas like kitchens and living rooms that both you and your renters use?
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Mikayla Brown
•It absolutely handles part-year rentals! You just enter the specific timeframes each room was rented out, and it prorates all your deductions accordingly. It even helps you determine what portion of your expenses should be allocated to those periods. For fair market rent questions, it actually provides guidance based on location and amenities to help you determine if you're charging appropriate amounts. It has a comparison feature that shows typical rates in your area, which is super helpful for documentation purposes.
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Ali Anderson
Just wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. I was honestly blown away by how thorough it was! I've been renting out my spare bedroom for cash and had no idea about all the deductions I was missing. The tool showed me that I could claim depreciation on the rental portion of my house (something I didn't even know was possible) and helped me calculate exactly what percentage of my utilities, insurance, and other expenses I could legitimately deduct. It also generated all the documentation I needed for Schedule E. Ended up saving me nearly $2,000 compared to what I would have paid without those deductions. Definitely worth checking out if you're in this situation.
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Zadie Patel
If you're getting frustrated trying to reach the IRS with questions about rental income reporting (I spent DAYS trying), you might want to try https://claimyr.com - they got me through to an actual IRS agent in about 20 minutes after I'd been trying for weeks on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had the exact same situation with renting rooms in my house, and I had specific questions about what percentage of my home I could claim as rental space (was confused about common areas like kitchen/living room). The IRS agent I spoke to was actually really helpful and walked me through exactly how to calculate everything correctly and what documentation I needed to keep.
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A Man D Mortal
•Wait, how does this even work? The IRS phone lines are impossible to get through - are you saying this service somehow jumps the queue? That sounds too good to be true.
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Declan Ramirez
•Yeah right. I've tried EVERYTHING to get through to the IRS and nothing works. I'm extremely doubtful some service can magically get you through when millions of people can't even get past the automated system. Sounds like a scam to me.
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Zadie Patel
•It doesn't jump the queue exactly. The service basically automates the calling and waiting process. It continuously calls the IRS using their system and when it finally gets through the initial automated menu system, it notifies you so you can take the call. It's not a scam at all. The technology just handles the frustrating part of repeatedly calling and navigating those initial menus until a spot opens up. Once you're in the queue, you still wait like everyone else, but you don't have to spend hours redialing or keeping your phone tied up. I was skeptical too, but after wasting entire days trying to get through myself, it was absolutely worth it.
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Declan Ramirez
I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it as a last resort because I was desperate to talk to someone at the IRS about my rental income situation. The service actually worked! It took about 35 minutes total (much better than my previous attempts), and I finally got to speak with an IRS representative who clarified exactly how I should report my roommate rental income and what percentage of my home expenses I could legitimately deduct. They confirmed that I needed to use Schedule E and explained how to calculate the square footage percentage correctly. Saved me a ton of stress and potentially an audit. Sometimes it's worth admitting when you're wrong!
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Emma Morales
Just a heads up - if you're receiving payments through Venmo, be aware that starting with tax year 2022, payment apps like Venmo, PayPal, and Cash App are required to report transactions to the IRS if you receive more than $600 in a year for goods and services. They'll send you a 1099-K form. Even if your friends aren't marking the payments as "goods and services" (many people just mark them as personal payments), it's still technically reportable income. The risk of getting caught for not reporting it is much higher now with these new reporting requirements.
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Ruby Knight
•Wait, does this apply even if my roommates are just marking it as a personal payment or using the "friends and family" option? They don't select the "goods and services" category when they send the rent.
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Emma Morales
•The 1099-K reporting requirements are specifically for payments marked as "goods and services," so if your roommates are marking payments as personal/friends and family, Venmo won't be issuing a 1099-K for those specific transactions. However, this doesn't change the fact that rental income is still legally required to be reported on your tax return regardless of how it's paid or whether you receive a 1099. The IRS rules about income reporting don't depend on whether you receive a form or not - all income is technically reportable. The "friends and family" option just means Venmo itself isn't reporting those specific transactions.
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Katherine Hunter
Don't forget you can also deduct things like cleaning supplies for the rental areas, any repairs specific to the rented rooms, and even a portion of your internet bill if your roommates use it. And if you did any upgrades to the property specifically because of the rental activity, those might be deductible too.
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Lucas Parker
•Is there a limit to how much you can deduct though? Like, can you deduct so much that you show a loss on the rental even though you're actually making money?
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Landon Morgan
•Yes, there are limits to be aware of. The rental loss rules can be tricky for owner-occupied properties. If you're actively participating in the rental activity (which you are as the landlord living there), you can generally deduct up to $25,000 in rental losses against your other income, but this phases out if your adjusted gross income exceeds $100,000. However, with your regular job income of $70k plus $27k in rental income, you're likely going to show a profit anyway once you factor in all the legitimate deductions. The key is making sure your deductions are reasonable and well-documented. You can't just arbitrarily inflate expenses to create a loss - everything needs to be legitimate and properly allocated between personal and rental use.
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Vanessa Chang
I'd strongly recommend consulting with a tax professional about your specific situation. While the advice here is generally solid, there are some nuances with owner-occupied rental properties that can get complex. For instance, you mentioned your mortgage interest was $12,400 - you'll need to split this between your personal residence portion and the rental portion. If 30% of your home is rented out, then 30% of that mortgage interest ($3,720) would go on Schedule E as a rental expense, while the remaining 70% ($8,680) can still be claimed as an itemized deduction on Schedule A. Also, be very careful about the depreciation deduction that was mentioned. While you can depreciate the rental portion of your home, there's a "recapture" rule that means you'll have to pay back some of that depreciation benefit when you eventually sell the house, even if it's your primary residence. This can be a significant tax hit later. The bottom line is that yes, you absolutely need to report this income - but with proper planning and documentation, the tax impact may be much less than you think. A good tax preparer can help you navigate these rules correctly and make sure you're taking advantage of all legitimate deductions while staying compliant.
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Faith Kingston
•This is exactly the kind of comprehensive advice I needed! I had no idea about the depreciation recapture rule - that could definitely be a surprise down the road when I sell. Can you explain more about how that works? Like, if I claim $2,000 in depreciation deductions each year for 5 years, would I have to pay tax on that full $10,000 when I sell, even if the house has appreciated in value? And is there a way to calculate whether it's worth claiming depreciation at all, or should I just skip that deduction to avoid the recapture issue later?
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Tony Brooks
•Great question about depreciation recapture! Yes, you're required to "recapture" depreciation when you sell, but it's not quite as straightforward as paying tax on the full amount. Here's how it works: Let's say you claim $2,000 in depreciation annually for 5 years ($10,000 total). When you sell, that $10,000 gets taxed at a maximum rate of 25% (the depreciation recapture rate), regardless of your regular income tax rate or capital gains rate. But here's the kicker - you're actually required to recapture depreciation whether you claimed it or not! The IRS assumes you took the "allowable" depreciation even if you didn't claim it. So skipping the depreciation deduction now doesn't save you from recapture later - you'd just lose the current tax benefit without avoiding the future tax hit. The math usually works out in your favor though. If you're in the 22% or 24% tax bracket now, saving that percentage annually on $2,000 in depreciation typically outweighs paying 25% on the recapture when you sell years later, especially considering the time value of money. Definitely run the numbers with a tax professional, but in most cases it makes sense to claim the depreciation since you'll face recapture either way.
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Chloe Anderson
I understand the temptation to not report it since it's through Venmo, but you really need to report this rental income. The $27k you collected is significant income that the IRS expects to see on your return. Here's what you should know: You'll report this on Schedule E (Rental Income), but the good news is you can offset a lot of it with deductions. Since you're renting out rooms in your primary residence, you can deduct the rental percentage of expenses like mortgage interest, property taxes, insurance, utilities, repairs, and even depreciation. For example, if the rented rooms represent 25% of your home's square footage, you can deduct 25% of your qualifying home expenses against that rental income. With your $12,400 in mortgage interest alone, that could be around $3,100 in deductions right there. Don't risk tax evasion charges over this - the penalties and interest aren't worth it, especially when proper reporting with deductions will likely result in much less tax than the 25% you're estimating. The IRS has been cracking down on unreported income, and payment apps are reporting more transactions than ever before. I'd strongly suggest getting help from a tax professional for your first year doing this to make sure you capture all the deductions you're entitled to and set up good record-keeping practices going forward.
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Chloe Robinson
•This is really helpful advice! I'm curious about the record-keeping aspect you mentioned. What specific documents should I be keeping for the rental portion of my expenses? I assume I need receipts for repairs and utilities, but what about things like depreciation calculations or the square footage measurements? Should I be taking photos of the rooms or getting some kind of official measurement? I want to make sure I'm prepared if I ever get audited, especially since this is my first time dealing with rental income reporting.
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