One of the easiest ways to start building multiple streams of income, and making passive income today without having to invest much time, effort, or capital into anything other than what you already own is to rent out a portion of your home.
There are several ways to rent out your home to make a passive income. You can choose to rent out a room in your home to short-term guests passing through the area. Sites like AirBnB are a great place to start your research for this type of arrangement.
Another option is to rent out a room, or even a whole floor, in your home to longer term tenants. With this option you will have to do a bit more marketing to find the right renter. Luckily, you can do most of this marketing for free using social media and other free online advertising options, like Craigslist. You will also have to develop a contract with clear rules for you and your tenant to sign.
Getting started renting out your home to a long-term or even a short-term tenant is a pretty easy way to make passive income, but you need to remember the tax implications of renting out your home for profit.
You Must Report Rental Income
Renting out your home to make a little extra money is seen as a profit in the eyes of the IRS. Therefore you will have to report your rental income on your tax return each year.
The good news is that you can claim some expenses to help off-set this income. This includes things like:
- mortgage interest
- homeowner’s insurance
- repairs that affect your entire home
- improvements that affect your entire home
- a portion of utilities
- housecleaning or gardening services for your whole home
- and more
Before you try to claim these expenses to off-set your income, check with a professional.
Renting Out Your Primary Residence vs. Renting Out a Vacation Home
Renting out a portion of your primary residence is treated differently than renting out a vacation home or other property you own when it comes to the IRS’ rules.
If you rent out your primary residence you won’t be able to claim as many expenses on your rental income because you do use the property for personal use (living), not just for generating income.
You can find a brief guide to help you get started with this distinction at the IRS website.
The tax implications of renting out your primary residence can be quite confusing, so before you decide to start renting out your home, you should check with a tax professional for guidance.
*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Shoeaholic No More*
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