These days it’s more important than ever to save a little bit of cash here and there. So, if you want to put some money aside, tax credits and deductions can be a fantastic place to start.
While we often hear about tax breaks for homeowners, renters shouldn’t despair! Indeed, there are several tax deductions and credits that you may qualify for, even if you are renting.
In this guide, we’ll look at what you need to do to qualify and which tax credits and breaks you can enjoy while renting throughout the U.S.
How Can Renters Qualify for Tax Deductions and Credits?
Before you start claiming tax breaks and credits, it’s important to ensure that you meet the various qualifications. Different states tend to have their own specific requirements that renters will need to meet before they can claim tax credits and deductions.
The only way to be sure that you qualify is to check with your state’s Department of Revenue. You can normally do this online in a matter of minutes.
Broadly speaking, however, the basic requirements in most areas typically include the following:
- The owner must pay tax on the property you’re renting,
- It must be your name on the lease and you take legal responsibility for paying the rent on time,
- You’re required to be a resident of the state in which you’re renting the property,
- You must file your own tax return and can’t be claimed as a dependent on someone else’s.
8 Tax Deductions and Credits for Renters
Even though you cannot deduct your rent application fees when completing your tax return, there are plenty of other tax credits and breaks that those renting a house may enjoy. Here are 8 of the most common.
1. Property Taxes
Whenever you sign the lease to a new rental, check the lease agreement to see if you’re required to pay property taxes. If so, you can typically deduct any property taxes you pay directly when you file your tax return.
Don’t worry if you’re not paying the property tax directly though. Many states offer a tax credit specifically for renters in this situation. The credit is based on an estimation of how much of your rent is used by landlords to cover property taxes.
2. Loss or Damage of Property Caused by a Federally Declared Natural Disaster
Natural disasters can cause catastrophic damage which will often take many months or even years to fully recover from. If you do find yourself the victim of wildfire, mudslides, flooding, or tornadoes, there is a glimmer of hope, however.
You can usually deduct any property losses or damages that weren’t covered by insurance from your tax return. Additionally, you may also qualify for natural disaster tax relief, which can enable you to access tax refunds quicker than normal or offer you free access to any retirement accounts you hold. For more details, make sure to check the IRS website.
3. State-Level Tax Credits
In some states, you may be offered a tax credit if your total household income falls below a certain threshold. Examples include:
- Hawaii: Renters earning less than $30,000 and paying more than $1,000 in rent per year qualify for a tax credit.
- Washington D.C.: A tax credit of up to $750 is offered to renters who earn less than $20,000 a year.
- Minnesota: Tax refunds may be offered to renters earning less than $73,270 per year.
Be sure to check your local requirements to see if you qualify for tax credits in your state.
4. Tax Deductions for the Self-Employed
If you have an IRS 1099 Form, you’re considered self-employed by tax authorities. This means that you can now claim for a variety of small business deductions that are necessary for your job, such as fuel, office equipment, business cards, tools, and much more.
5. Home Office Deduction
In the same vein, if you’re self-employed and working from home as your main place of work, you can normally claim for the home office deduction. This relates to any space in the property you’re renting that is only used for work, be it an entire dedicated office room or a desk in your bedroom. You’ll need to be consistently working from home to qualify, but if so you can make a nice saving.
The home office deduction is directly linked to the size of your office space and there are two ways to calculate what you’re able to deduct. With the simple method, just measure your space and multiply it by $5 (up to a maximum of 300 square feet). The standard method calculates the size of your home office as a percentage of your rental unit, plus the percentage of utilities used to power it.
Whichever calculation you use, you can also deduct any expenses that relate to your home office, such as computers and furniture.
6. Subleasing Costs
If you choose to sublease your home, you may also be able to deduct various costs that are necessary to the sublease. These typically include maintenance and rent costs.
7. Charitable Donations
Whether you own or rent property, if you make donations to charitable institutions you can deduct up to 60% of these contributions from your adjusted gross income. Qualifying charitable contributions include monetary donations and goods, such as clothes, vehicles, or equipment, that have been given to a tax-exempt organization such as the Salvation Army. If you qualify, you can report your contributions to charity as an itemized deduction using Form 8283.
8. Renters in Education
If you’re studying at college while renting, either full or part-time, you may be able to claim up to $2,000 to $2,500 with either the Lifetime Learning Credit or the American Opportunity Credit. Just bear in mind you can only claim one each year. It’s worth noting that if you’re a parent who rents with a child in college, you may also be able to claim either of these credits.
In the same vein, those with student loans can also deduct up to $2,500 for the interest paid on the loan with the Student Loan Interest Deduction.
