Renting a Room in Your Home: Tax Rules for Homeowners

Income, expenses, and allocation

When you rent a room or portion of your primary residence to a tenant, the rental income is taxable and must be reported on Schedule E. You can deduct a proportionate share of home expenses against that income.

Common allocation methods: number of rooms (if the rented room is 1 of 6 rooms, the rental portion is 1/6) or square footage (rented area ÷ total home area). Use a consistent method each year.

Deductible proportionate expenses include: mortgage interest, property taxes, homeowners insurance, utilities, and repairs that benefit the whole home. Expenses that benefit only the rental room (a lock, separate HVAC unit) are 100% deductible without allocation.

The Section 121 home-sale exclusion later shields the personal-use portion of your home's gain. The rental portion is subject to recapture.

The 14-day rule: when room rent is tax-free

Section 280A(g) — sometimes called the Augusta Rule — provides that rental income is not taxable if you rent your home for fewer than 15 days per year. If you rent a room (or the whole home) for 14 days or fewer, you report zero income and get zero deductions. The rental is invisible to the IRS.

Once you cross into 15 or more rental days in a year, all rental income becomes taxable and you can claim the proportionate deductions. The 14-day threshold is sharp — 14 days is entirely excluded, 15 days means everything is included.

Depreciation and what happens when you sell

You can — and should — claim depreciation on the rental portion of your home. The depreciable basis for the rental portion is the lesser of cost or fair market value at the time the rental activity began, allocated by the rental percentage.

Example: home purchased for $400,000 when FMV was $400,000; 20% is rented. Depreciable basis = $400,000 × 20% × (building portion ÷ total). Depreciate over 27.5 years.

When you sell the home, the Section 121 exclusion ($250,000 single / $500,000 married) covers gain from the personal-use portion. The rental-portion gain is taxable, and accumulated depreciation is subject to recapture. Keeping a depreciation schedule for even a small room rental is worthwhile so you can correctly allocate gain at sale.

Frequently asked questions

Is room rental income taxable?

Yes, if you rent for 15 or more days per year. Fourteen days or fewer is excluded entirely under Section 280A(g). Once you exceed 14 days, all income is taxable.

Can I deduct my mortgage interest on the rented room?

The proportionate share of mortgage interest allocable to the rental room is deductible on Schedule E. The personal-use portion remains deductible on Schedule A if you itemize.

Does renting a room affect my Section 121 exclusion?

The exclusion applies to the personal-use portion of the home. Gain attributable to the rented portion — including depreciation recapture — is taxable even if the rest of the gain qualifies for the exclusion.

Sources

Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.