6 Must-Dos to (Legally) Rent Out Space on Your Property
Renting a room in your house to other folks may seem like an easy way to make extra income, but there’s a lot to take into consideration before you take that big step. Having other people reside in your home means you need to consider a lot of regulations, laws, and other small things you may not have thought about before deciding to take the plunge and rent out a space. Browse the following list to make sure that you’re aware of the behind-the-scenes paperwork and all the legal bits and pieces that are part of the process.
Research Your Local Laws
First, make sure you look into the ordinances, laws, and regulations in your own city and state about renting a space. Your town or state may have laws about how many people are allowed to reside in one space, whether based upon square footage or type of residence.
Report the Income on Your Taxes
One thing a lot of people don’t realize about renting a space is that you can’t just pocket all of the money you make; it’s considered taxable income by the Internal Revenue Service. This means that the money a tenant pays you -- whether they’re staying for just a few days, a few months, or a year -- must be reported as income, just like the money you make on your paychecks. All of the money you collect and keep from a tenant must be reported as income, otherwise it’s considered tax fraud.
Deduct Your Expenses
The positive thing about having to report the rent you collect is that you may also report any expenses related to the space as deductions on your income taxes. This includes many things you may spend extra money on such as furniture, windows, paint, carpet, linens, or other items for that space. While costs for the whole house may not be deducted, such as a roof for the entire house or replacing the water heater that supplies all of the bathrooms, a percentage of these costs can be deducted, depending on how large the space is or how many people are residing there versus the rest of the house.
Have a Written Agreement
While some states consider oral agreements to be binding and legal, it can be difficult to prove what was actually said and agreed upon. Make sure to do a little research and create a copy of an agreement that covers you in the case of a loss. Tenants can damage and destroy things whether they mean to or not, and it’s important to create an agreement that holds them responsible during the stay, much like staying in a hotel room. This also means that you must uphold your part of the deal as the landlord, which includes local landlord-tenant laws.
Get a Deposit
It's also recommended that you get a deposit from your tenant whether their stay is long or short-term, just in case something unexpected happens. If something brakes, the door is left unlocked, some of your stuff goes missing, or items are damaged beyond regular wear and tear, you can deduct the costs from their deposit after consulting with the tenant. Include examples that may be deducted from a tenant’s deposit in the agreement so that charges won’t come as a total surprise if you feel the need to make them.
Keep Your Space to Code
Since you will be renting a space to a tenant, you must keep the rented space and your home up to code. This includes heating, cooling, and health conditions such as cleanliness and the prevention of mold. Deliver what you promise in your advertising and follow the local regulations and laws, and renting your space should run as smoothly as possible.