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Can You Claim Rent On Your Taxes?

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Can You Claim Rent On Your Taxes?

Getting a tax deduction for rent probably never crossed your mind if you've always worked as a W-2 employee. But if you're self-employed, many of the purchases you make for your business can be written off from your taxable income. You might already be on the lookout for any business expenses you can deduct from your taxable income. But what about living expenses? For example, is rent tax-deductible? It is, if you pay 1099 employee taxes. In fact, you can write off your rent in not one but three ways, and if you know how to use them, a rental tax deduction can be the one that saves you the most each year.

Table of contents

Key takeaways...Read more

I work from home. Can I deduct rent from my taxes?...Read more

When can I deduct rent from my taxes?...Read more

How does claiming rent on taxes work?...Read more

What are the IRS regulations for writing off your rent with a home office?...Read more

What else can be written off from taxes for renters?...Read more

How else can you deduct rent from taxes?...Read more

There's one more way to write off your rent...Read more

Renters tax credits...Read more

Key takeaways

  • To lower taxes for renters, a home office or rented office space can be written off 1099 taxes.
  • Hotel lodgings can also be a rental tax deduction for self-employed individuals.
  • There are also renters tax credits like the California renters credit that lower state taxes.

I work from home. Can I deduct rent from my taxes?

It's possible you might have heard about this one already, even if you're not a freelancer, because the home office deduction is a very popular rental tax deduction. One reason for that is housing costs. In the US, having a roof over your head is the single highest cost for most people. So, knowing that you can write off rent on your taxes is a big deal. But it's not always very well understood. Here's who can use it, how it works and some rules around it.

When can I deduct rent from my taxes?

The home office deduction is one of the biggest perks that freelancers, self-employed individuals and independent contractors have. If you work for yourself and work from home, you can deduct rent from your taxes. Why isn’t rent tax deductible for W-2 employees? Back in the day, W-2 employees were allowed to deduct some of their work-related expenses if they worked from home, but the 2018 Tax Cuts and Jobs Act did away with that.

How does claiming rent on taxes work?

The most important thing to remember is that you can't actually deduct all of your rent, only the portion you use for your home office. If you want to figure out exactly how much of your rent you can write off, there's a simple three-step formula:
  1. Find the square footage of your home workspace:
    Divide the square feet you use for your home workspace by the total number of square feet in your home to get a percentage.
  2. Find the deductible portion of your rent: Multiply that number by the monthly rent amount to get the dollar amount you can write off from your taxes.
  3. Find your annual rent tax deduction: Multiply that dollar amount by 12 months to get your total annual tax deduction for rent.
Suppose you rent a small house and run a woodworking business from a workshop in the basement. You can write off a portion of your rent by dividing the square footage of your home workshop by the square footage of the home and multiplying that number by the monthly rent.
Infographic entitled How To Calculate Home Office Deduction showing how you can write off rent on your taxes.

What are the IRS regulations for writing off your rent with a home office?

Just because you have a home office, it doesn't mean you can automatically take the rental tax deduction. The IRS has parameters that your home office has to fit into, or it won't be considered deductible. Here are three simple questions to give you an idea of whether your home office qualifies you to write off rent:
  1. Is your home office regularly used for work? Do you use this space at your home regularly to do work for your main occupation or run your business, rather than occasionally using the space for work? If yes, then you can claim rent on your taxes.
  2. Do you use your home office exclusively for your work? If the space doubles as a home theater or your child's playroom, for example, you can't use it to write off your rent. It must be a part of your home used only for business purposes.
  3. Is your home office the principal place where you do business? Using your home office to write off your rent has to be the main place where you do your work. If you rent office space outside your home and occasionally work from your home workspace, your home office won't qualify you to write off your rent.

What else can be written off from taxes for renters?

Rent isn't the only thing you can deduct from your taxes if you have a home office. There are many other related expenses you can take. If you pay utilities like electricity or natural gas, you can deduct a percentage of them from your taxable income based on the percentage of space you use for your home office. The same goes for renter's insurance, office supplies, Wi-Fi and certain home repair expenses. One way to find every home office tax write-off you can take advantage of is to use FlyFin. With A.I. finding every possible tax write-off, you won't need to save your receipts anymore or spend time keeping detailed spreadsheets.
Infographic entitled Top 6 Home Office Tax Write-Offs listing expenses that can be deducted from taxes for renters.

How else can you deduct rent from taxes?

If your business reaches a point where you need more office space than your home office can accommodate, congratulations! You not only have a growing business, which is the dream, but you also have another situation where your rent is tax deductible. Let's say you're an Airbnb host. You used to have a home office, but now you're renting out your entire apartment, so you want to find another place to work. Signing a lease on a dedicated office space outside your home means you get to deduct the entire cost of renting that space from your taxable income. Just keep in mind that the IRS won't let you also deduct part of your apartment rent for a home office. You can use a 1099 tax calculator to calculate your rental tax deduction. As an Airbnb host, you can also deduct the cost of groceries from your taxes as it is an ordinary and necessary expense. Additionally, you can only deduct rent during the year you pay it. So if you’ve paid for a space in advance, you can deduct only the portion you use in the current tax year. The rest you can deduct the following year. You also cannot deduct rent if the rate is higher than the current market value. You can have a professional appraisal of your home or workspace to determine the current valuation. Paying “unreasonable rent” and claiming it as a deduction isn’t going to fly with the IRS. Sometimes, business owners may mistake property purchase payments for rent. This can get confusing, but basically, if your agreement is a conditional sales contract, those payments are not tax deductible.

There's one more way to write off your rent

It's not the same as signing a lease on an apartment or office space somewhere, but when you're on a business trip, you technically "rent" a hotel or short-term lodging. And as a business travel expense, the IRS allows this to be written off from your taxes. Along with other business travel expenses, anything you spend for accommodations at a hotel, Airbnb, Vrbo or other apartment share service is deductible, as long as it is within the IRS regulations for business travel write-offs.
Infographic entitled Is Your Trip Work-Related listing the criteria for taking the rent deduction on your taxes.
These methods for turning your rent into a tax deduction are generally only available to self-employed individuals. With all the ways to save money as a freelancer or independent contractor, it's important to keep your finances organized so you don't miss a single opportunity to write off a business expense. If your tax liability is over $1,000, you can use an estimated tax calculator to total your quarterly tax payments.

Renters tax credits

What if we told you there was a way to lower taxes for renters apart from writing off rent? Well, there is. Many US states offer renters tax credits that can be used to lower their state taxes. And while this doesn’t affect federal taxes, it’s still an option you should take advantage of. Let’s say you’re an independent contractor living in California. The state of California does offer its residents a renters tax credit provided they fulfill a few requirements like:
  • Not being a dependent
  • Did not receive an exemption from property tax
  • Paid rent for at least 6 months in California
  • Earned less than $49,220 as a single filer or less than $98,440 as a joint filer
Each state has its own program, and they give it different names, which can be a bit confusing. But the general idea is to help people who are paying rent for their main place of residence. To qualify for this state-level renter's tax credit, you usually need to meet specific criteria. These criteria can vary from one state to another, but they often focus on factors like your income, family size, and whether you're renting your primary residence. Now, about income limits - most state programs limit how much you can earn to be eligible for the credit. So, if you're in a higher tax bracket, you probably won't qualify. This is designed to direct assistance to those who really need it. To claim the credit, you'll typically have to fill out an application during tax season. The application might require some documents to prove you're eligible, like proof of income and where you live. Now, you should know that these state programs aren't one-size-fits-all. Some states offer refundable credits, while others have non-refundable credits, which reduce your tax liability but won't give you a refund check. So, make sure to research what the rules are in your state.
 Infographic entitled What Can I Deduct As A 1099 employee listing some independent contractor tax write-offs that can lower SE tax.
Claiming rent on your taxes is a huge way to reduce your financial burden. You should always ask a tax professional to help if you feel like you need some extra help. Taking the home office deduction also requires keeping good records, so save everything!

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

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