Renters often bemoan the fact that they aren't allowed to deduct interest mortgage from their taxes like homeowners do, and sometimes wonder if there is a rent deduction. In fact, rent deductions are available in certain states, but rent cannot be deducted on a Federal tax return, except in certain circumstances which will be addressed below. State-by-state information about rent reductions is available in the tax forms for individual states.
As a general rule, in order to qualify for a rent deduction, someone needs to be filing as the head of a household, and the rent involved must be rent used for a primary residence. The definition of “primary residence” can vary from state to state, so people who rent several properties may want to check with an accountant or tax attorney to determine which residence meets this requirement.
In some states, renters are allowed to treat all or a portion of the rent they pay as a deduction from their taxable income, which reduces their overall tax burden. The tax booklet usually has specific information about how to do this and which section of the tax form covers the rent deduction. Other states have a renter's tax credit, which takes a certain amount directly out of the filer's total tax burden. For example, if someone owes $1,200 US Dollars (USD) in taxes and gets a $200 USD tax credit, he or she would owe $1,000 US.
A rent deduction can be claimed on Federal taxes if the rent is for a facility used for business. In the case of business owners, the rent on an entire retail business, storage facility, or other business-related structure is considered a business expense, and it is deductible. People who run home businesses may be able to deduct part of the rent on their homes if they can show that a certain area of the home is used for the purpose of conducting business. The Internal Revenue Service has specific guidelines about calculating tax deductions for business use of a home, but the key thing for people to know is that they can only deduct a percentage of the rent, not the entire rent for the home.
Internationally, rent deductions vary. Tax codes can get quite complex and they tend to change frequently, so renters should consult someone who is knowledgeable about local tax codes to get the best information about rent deduction options. People who are filing taxes in two or more nations are strongly advised to consult an attorney or accountant to ensure that the taxes are filed properly.
Incidentally, as a general rule, if a taxpayer erroneously claims a deduction he or she is not entitled to, tax authorities will be forgiving as long as the taxpayer shows that it was a genuine mistake, and agrees to pay the difference in taxes owed. Taxes can sometimes get complicated, and tax officials understand this, so as long as a rent deduction is claimed in good faith, a taxpayer should not face legal problems, especially if he or she cooperates with tax officials when an error is identified.
