In the U.S., if I rent out my own house for $2k and rent somewhere else for $2k, do I still make taxable income?
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5What country? In the US, most likely yes, since the rent you pay is not a deductible expense.– D StanleyAug 10, 2017 at 22:18
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1That said, there may be certain circumstances in which it is deductible (e.g. you are renting a house temporarily to work in a different location).– D StanleyAug 10, 2017 at 22:36
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1Generally yes, but there are a number of deductions you can take as a landlord that will often significantly decrease your taxable income from your rental property. Depreciation of the structure (the proportion of the cost of your home that is not land) is often the largest source of deduction as a landlord, but HOA fees, maintenance/repairs are all deductible as well.– dekaliberAug 11, 2017 at 1:34
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1Even if the rent is deductible, you probably cannot offset the amount of rental income you are proposing. In MA, for example, you can claim rent payments as a deduction on your state tax, but only 50% of the expenses and only up to a maximum of $3,000 a year.– chepnerAug 11, 2017 at 12:24
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4 Answers
In the U.S., if I rent out my own house for $2k and rent somewhere else for $2k, do I still make taxable income?
Yes, if you rent out your house, that creates taxable income. As a general rule, you can't deduct rent that you pay for your own housing against that income.
You might be able to find some circumstances in which you could do so. But don't expect to be able to rent out your house for a year and deduct that year's rent that you paid from that.
A home office deduction might allow you to offset some of your rent. But there are a lot of restrictions on that. It's not a get out of taxes free card. They actually expect you to use part of your home as an office. And you can claim a home office deduction in your home as well.
In general, any deductions that you can take based on paying rent, you could take without owning a house or renting it out.
You also might be able to deduct certain expenses related to maintaining the house against the rental income. But again, that's entirely separate from you paying rent.
In the U.S., if I rent out my own house for $2k and rent somewhere else for $2k, do I still make taxable income?
Yes. The legal reason has been explained elsewhere, but the common sense answer is this: Even if you cancel everything out, you are still gaining the benefit of a place to live with a value of $2k. That value that you get out of these deals would be taxable.
You perform a set of trades, and out of those trades you get out $2k in value more than you put in (the right to live in the rented space). That's taxable income.
Another way to see it is this: You rent out a house and get $2k. That's taxable income. That you also pay $2K and in exchange get a place to live worth $2K is neither a profit nor a loss, it's an even exchange. So that has no effect on the $2K in profit you got.
answered Aug 11, 2017 at 21:27
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But you don't get taxed on the value of living in a house you own (likely because it'd cause an outcry, rather than for any rational reason). Aug 11, 2017 at 21:35
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No, it's for a rational reason. You have an offsetting loss. If you own a house, you also own the value of living in it for that month. When you live in it, you lose that value (since you no longer have it). Aug 11, 2017 at 21:42
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On any other investment, you'd be taxed on that value (as this question shows). Aug 11, 2017 at 22:00
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@GaneshSittampalam Yes, but as I said, you would also have an offsetting loss. (And in the OP's case, he can depreciate his house since it's a business property.) If the gain is taxable, so is the offsetting loss. If the gain is not, neither is the offsetting loss. Aug 11, 2017 at 22:16
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1@GaneshSittampalam , there are countries that do tax you for imputed income for the benefit of living 'for free' in your own house. The US doesn't, though.– AganjuAug 12, 2017 at 14:10
There are several circumstances where your rent payments can be tax deductible. They aren't the easiest to apply for, so you shouldn't assume so, but it is possible, such as using the home office deduction.
Could be a pretty ideal arrangement if you can create those situations.
Yes, I still make taxable income. Yes, I'm still paying for property tax, insurance and other expenses. Yes, I can offset these with deductions but it won't be 100%.
Bottom line is I will be a fool if I want to do this for long term. The best thing I can think of in this situation is to sell the house because $250k of profit by selling the house is not taxable if I have lived in the house for at least 2yrs out of total 5yrs. And maybe use this profit to buy another house somewhere else.