Rental Income Taxes

[Nick Lawler]

I am currently house hacking and renting out a couple bedrooms to some Navy friends but do not have them under a rental lease, however, I collect rent on a monthly basis. I am not sure of how this will affect my taxes for next year and am in need of some help or direction to a good tax advisor. Am I still required to document this on my taxes as passive income or would I have to have proof via a lease agreement to do this? If I don't record this passive income, the money is tax free since it is under the table, but am I able to take advantage of depreciation and other deductions of a rental property? Am I able to call it a rental property since I am owner occupying? If anybody has experience or knows of a good tax advisor to recommend in the Portsmouth, NH area or surrounding area down to Boston, I would like to hear your thoughts!

[Eamonn McElroy]

It's advisable to report the rental, if it is indeed a rental and not a cost sharing arrangement.  And, that's something you'll want to figure out first.  If it is a rental, you'll most likely get it down to $0 of net taxable income on your return anyway.  Make sure either you (if you DIY) or your tax CPA understand the unique tax consequences of renting rooms in your residence.

Just because it's paid in cash does not mean it's not taxable.  And...the statute of limitations never closes on a fraudulent tax return.  Fraud is intrinsically difficult to prove.  However, if you say, post on a publicly accessible forum about your potential plans, I'd say the IRS would have no problem proving fraud in court.