It’s that time of year again: tax season. But before you sit down to work on this year’s taxes or talk to your CPA, educate yourself about tax deductions. They’re not just for homeowners. There are a variety of potential tax deductions for renters, too. And they’re useful to consider if you’re searching for an apartment versus looking to buy a home. Here are a few to consider:
Can you take a renter’s tax credit?
While homeowners enjoy a mortgage tax credit on their federal tax returns, many renters can get in the game as well at the state level. Many states, including California, offer a renter’s tax credit. However, you’ll likely need to meet certain income thresholds. In California, for example, your income must be under $42,932 if filing singly and under $85,864 if filing jointly. To qualify, you’ll also have to have paid rent in California for at least six months of the year.
Can you deduct rent as a business expense?
If you’re a freelancer or contractor working from home or own a home-based business, you can deduct a portion of your rent (as well as what you pay for utilities like electricity and internet) on your taxes. You must have a designated area in your home that you use for generating income, however, like a home office space, and you can only deduct expenses for that portion of the apartment.
For example, if you rent a 900 sq. ft. apartment and you have a home office space of about 90 sq. ft., you can deduct 10 percent of your rent and utility expenses as business expenses. For more details, check out the IRS guidelines on Business Use of Your Home.
Can you take tax deductions for subletting your apartment?
Did you sublet your apartment last year? If you spent six months studying in Europe and rented your apartment to a friend, for example, you can take tax deductions for expenses related to leasing your apartment (assuming your landlord permits subletting!). However, you have to report all your rental income, too.
Among the items you can deduct in a subletting situation are rent, renters insurance, and utilities. Check out IRS guidelines on rental income and expenses for more information.
With a little research and careful bookkeeping, you may be able to earn yourself a refund this tax season. But before you take any tax deductions for renters, be sure to check in with an accountant.