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I rent out a room in my house | Gotax

May 28, 2024

What are the tax implicaations of renting a room in your house?

Renting out a room in your home can have several tax implications and may also offer you some tax deductions. Here are some key points to consider:

 Tax Implications of Renting a room out

1. Rental Income: The rent you receive is considered assessable income and must be declared on your tax return.
2. Capital Gains Tax (CGT): Renting out a part of your home could affect your CGT main residence exemption. If you sell your home, you may need to pay CGT on the portion of the home that was used to produce rental income.

Gotax Checks your Tax ReturnTax Deductions:

You may be eligible to claim deductions for expenses related to the portion of your home that is rented out. These expenses can be divided into two main categories:

1. Direct Expenses:

These are expenses that relate directly to the rented area. 
   - Repairs and maintenance specific to the rented room
   - Utilities (e.g., electricity, gas, water) specific to the rented room
   - Insurance (if you have additional coverage for the rented area)

2. Apportioned Expenses:

These are expenses that relate to the whole property but need to be apportioned between private and rental use. 
   - Mortgage interest
   - Council rates
   - Building insurance
   - Depreciation on furniture and fittings in the rented room
   - General repairs and maintenance



The apportionment of expenses is generally based on the floor area of the rented room compared to the total floor area of the house. For example, if the rented room makes up 20% of the total floor area of your home, you can claim 20% of the relevant expenses as deductions.

Record Keeping:

It's crucial to keep detailed records of:
- Rental income received
- Dates the room was rented
- Expenses incurred
- Any periods when the room was not rented or available for rent

Special Considerations of Renting a Room:

- Shared Facilities: If the tenant shares facilities like the kitchen or bathroom, you may need to apportion expenses related to these shared areas.
- Private Use: If you use the rented room for private purposes during certain periods, you must adjust your deductions accordingly.
Important Notes:
- Market Value Rent: If you charge friends or relatives rent at below market value, your deductions may be limited.
- Tax Advice: Due to the complexity of tax laws, it is advisable to consult with Gotax if you are unsure of what to do.

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