Many renters feel left out after hearing about the windfall tax benefits that come with the perks of homeownership, such as mortgage interest and property tax deductions. It raises the question: can renters also deduct any of the taxes he or she pays?
In some cases, the answer is in the affirmative.
Freelance work from your apartment
Nowadays, it’s commonplace for many people to land freelance work to make a few extra coins on the side, especially with the Bay Area’s large pool of tech workers with skills in high demand. You probably know that as a freelancer, you can deduct business-related expenses against this secondary income — the cost of printing business cards or setting up your website, for example. However, you may be able to deduct part of your rent as a business expense, with several caveats.
To qualify for this type of deduction, you must have a delimited space in your living area where you perform all of your freelance work, and it must be used exclusively for your business activity. Parking your laptop on the kitchen table doesn’t transform the kitchen into your office.
Let’s say you rent a 1,000-square-foot apartment from Bay Property Group for $2,000 per month and you’ve carved out a 10-foot by 10-foot workspace (100 square feet) to get down to business and inspire the flow of creativity.
Doing the division, your workspace takes up 10%, meaning you may be able to deduct 10% of your rent as a “home office deduction.” Since your annual rent is $24,000, that translates into a potential $2,400 tax deduction. Other expenses you incur may be eligible for this deduction as well, but remember that the IRS requires and fully expects you to keep records to substantiate your expenses.
Nonrefundable Renter’s Credit
In California, you may be able to get a tax credit on your state income tax return for simply paying rent during the year. California’s Franchise Tax Board outlines who is eligible.
You must meet all of the following to qualify:
- You were a California resident for the entire year.
- Your California adjusted gross income (AGI) is:
- $41,641 or less if your filing status is single or married/RDP filing separately.
- $83,282 or less if you are married/RDP filing jointly, head of household, or qualified widow(er).
3. You paid rent for at least half the year for property in California that was your principal residence.
4. The property you rented was not exempt from California property tax.
5. You did not live with another person for more than half the year (such as a parent) who claimed you as a dependent.
6. You were not a minor living with and under the care of a parent, foster parent, or legal guardian.
7. You or your spouse/RDP were not granted a homeowner’s property tax exemption during the tax year.
- You may still qualify for the credit if your spouse/RDP claimed a homeowner’s exemption and you maintained a separate residence for the entire year.
Of course, there are many other deductions that may apply to renters, such as charitable giving, student loan interest deduction, and more — please consult a tax professional. Bay Property Group are not CPAs and cannot give tax advice.
We can, however, help you find your next shiny Bay Area apartment. After your search is over, you can return to us to make secure rent payments with a couple of clicks, view balances, submit maintenance requests, get renter tips, and more, all in one place online.