Posted on 12/29/2010 5:04:59 PM PST by Chickensoup
I am considering roommates to share expenses. I own a house and have a small mortgage. I have room for up to three roommates. I am told that if expenses are shared it is not income. I expect to pay the mortgage out of my own pocket. If someone paid the taxes, and others paid the insurance and other expenses would it be considered my income? I have not been able to find an answer.
I have a similar situation. I own the house and have 3 roomates. H&R Block said that because I own the house everything the roomies spend on expenses is income to me. Of course, I then get to take those expenses off my income tax, which is good as I have way too much withheld.
I own a 2d house filled with tenants who have roomies. The money they get from their roomies is not income for them because they do not own the house.
I’m not an expert on this. I’m just telling you my situation. It is unfortunate that taxes are so onerous that decisions have to be based on gaming the complexities of the tax code. We need a flat/fair tax for the sole reason that economic decisions will be based on what is most productive and not on the tax code.
My personal recommendation is to rent to roomies. At least in IL the rental and roomie market is very strong. Another personal recommendation: Alcohol/drug use is the #1 filter to avoid bad tenants/roomies. #2 is people who not on the government dole. Rooming with a drinker or parasite is not worth the hassle.
I did, no issue so far.
I did, no issue so far.
You also have to depreciate the house if you have tenants...which is not a good thing if you plan to sell.
Nope. My wife is an accountant. She says that it was a gray area that the IRS almost always overlooked back 30 years ago, (and in the case of a lease as long as both parties were on it, the law didn't apply) but now, with "domestic partner" legislation, it's a moot point, even with only one person on the property deed and mortgage (although obviously only the person on the mortgage can claim the deduction.)
Make them put up a hefty deposit. Good luck, you’ll need it
What if they decide they do not want to pay? or get two months behind and don't tell you?
ouch!
These are people I know. I will collect the pool and disburse it. And keep good books.
Your wife is mistaken snd not a very good accountant. Income is income and it is taxable. There is a big difference between simply sharing living expenses, insurance costs, or taxes (which are not income to the homeowner) and sharing the cost of the mortgage on a single family residence (which is income to the homeowner). The IRS does not take kindly when someone tries to hide income by calling it living expenses. You would have to be able to document true costs for everything, which could be a problem if you are not good at record keeping. Lots of tax penalties if you are caught earning income and not disclosing it. I would never advise someone to just ignore their potential liability on taxable income. I would advise them to know all of the legal issues before renting out parts of their home, even to a friend. They also better discuss this with their mortgage company, because they could be violating their contract. They also need to know local ordinances about multifamily homes.
I'll put my wife's 20 years of accountancy up against your opinion any time.
After rereading her posts, she clearly wants to do it for income(all costs except small mortgage paid by one or possibly others)
I know, but as an aside, Kirkwood raised the question of a live-in romantic partner. That’s what I was addressing.
For most people, I wouldn't think their would be any tax consequences. High rollers might have gift tax consequences if they get audited..
That's what my accountant wife said.
If these three roomies are your domestic partners you have other problems.
But the simple answer is Yes, it’s income, especially if you are claiming the 1040 deductions for mortgage interest and RE taxes paid....for which you are being partially reimbursed.
Instead of trying to skirt the issue of tax liability why not simply acknowledge the roommate’s payments as rent which it really is and pay the taxes you owe?
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