Say you own a three-bedroom home and rent one bedroom to third parties at fair market value.
Depending on the length of the rentals and the people to whom you rent, the tax code treats your bedroom rental as one of the following:
A tax-free activity.
A bedroom rental that you report on Schedule C of your Form 1040.
A bedroom rental that you report on Schedule E of your Form 1040.
A bedroom rental that’s deemed by the vacation home rules under tax code Section 280A as a personal activity limiting your deductions to your rental income (no tax shelter here).
A bedroom rental subject to the Section 280A vacation home rules, under which it qualifies as a rental property.
The sharing economy, including firms such as Airbnb, has made bedroom rentals more common than just a few years ago. It’s likely you know someone who rents a bedroom or two.
This article gives you, in plain English, the rules of the road on bedroom rentals. You will learn what to do, what not to do, and how to get the best possible after-tax cash result. ... Log in to view full article.