If you’re wondering whether you can deduct your rent on your taxes, the short answer is yes. You can deduct rent if you live in a state that allows it. However, only 22 states offer this type of deduction. Here’s what you need to know. A financial advisor can help you create a financial plan to minimize your tax liability for your needs and goals.
Rent Cannot Be Deducted From Federal Income Taxes
While the federal government does not allow taxpayers to deduct rental payments from federal income taxes, homeowners could get a tax deduction from interest paid on mortgage, property taxes, improvement costs and capital gains.
You should note, however, that few taxpayers take the mortgage interest or property tax deductions since they’re rarely worth more than the standard deduction.
By contrast, some items in the tax code allow renters to get tax deductions for housing, but those are structured around income and poverty levels.
Renters Can Deduct a Home Office
The closest that the federal tax code gets to a residential rent deduction is the home office deduction.
If you own your own business, work as a contractor or are otherwise self-employed, you can deduct a portion of your home from your taxes as a business expense.
This deduction is limited to the square footage that you use exclusively for business purposes. For example, if you have a dedicated office, you can deduct the square footage of that office. However if you work from the kitchen table, you can’t claim any amount of deduction since that’s a multipurpose space.
Taxpayers can claim the deduction in two ways. The first is by calculating the actual value of the space, based on the actual costs of the space. The second is through a standard formula provided by the IRS.
Remote workers cannot claim this deduction. It is only available to self-employed individuals.
Renters Can Deduct Rent From Some State Taxes
A few states allow renters to deduct a part of their rent on state income taxes.
Usually the purpose of this deduction is to prevent effective double taxation. Most landlords pay property taxes on the homes and units that they own. Most, if not all, then pass those costs along to their tenants as part of the rent. When property taxes go up, rent goes up to cover that cost.
In this way, renters pay property taxes to their local communities indirectly. As a result, some states allow tax deductions based on rent in order to defray the property taxes that renters have already effectively paid.
Other states use this deduction to help lower-income residents. Those states structure their rent deductions around income levels, allowing you to claim a deduction if you rent and have a sufficiently low income.
Rent Deductions in Qualifying States
In most cases a state will require the following:
- You are a resident and taxpayer of the state;
- The apartment is your primary residence;
- Your name is on the lease and you are the one paying the rent.
In some cases a state will also require that your landlord pays property taxes in your local community. From there, specifics vary widely. At time of writing, 22 states offered a form of renter’s tax credit. They are:
- Arizona
- California
- Colorado
- Connecticut
- Hawaii
- Indiana
- Iowa
- Maine
- Maryland
- Massachusetts
- Michigan
- Missouri
- Montana
- New Jersey
- New York
- North Dakota
- Oregon
- Pennsylvania
- Rhode Island
- Utah
- Vermont
- Wisconsin
In some states, the credit is restricted to taxpayers based on age or disability status. Essentially, the state wants to ease costs for disadvantaged taxpayers.
In other states, the tax deduction is based on income and rental payments. For example, one common rule is for states to allow renters to deduct up to $3,000 in rent that they’ve paid over the year, if they earned up to a certain income threshold.
Other states give a fixed credit to some renters, again typically defined by income threshold. In those states, the tax credit tends to be a negligible amount, often $60 or $75 in total.
Bottom Line
Taxpayers cannot deduct residential rent payments on your federal income taxes. But depending on where you live, you might be able to deduct a portion of rent from your state income taxes. Laws are subject to change with each year. Make sure you look up the rules in your individual state before filing your taxes.
Home Buying Tips
- Whether you’re looking to reduce your tax liability or buy a new home, a financial advisor can help you put a financial plan into action for your needs. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Should you rent or buy in your location? This is about far more than just personal preferences. In today’s crazy real estate market it has become an essential financial question for any household.
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