The Spare Room as an Income Stream
With housing costs where they are in 2026, more homeowners are renting out a spare bedroom — a long-term roommate, a traveling-nurse lease, or a steady short-stay arrangement — to help cover the mortgage. It's one of the most accessible forms of house hacking. But the moment you collect rent, you've created taxable income and a more complicated tax return. The good news: a chunk of your home expenses becomes deductible. Let's walk through how it actually works.
If you're approaching this as a broader strategy to offset your mortgage, our house hacking guide covers the bigger picture. This guide zooms in on the tax mechanics of renting one room.
Yes, You Have to Report the Income
Rent you receive from a roommate or tenant is taxable income, reported on your return (typically Schedule E for ordinary rentals). There's a narrow exception — if you rent your home for fewer than 15 days in the entire year, that income can be tax-free — but a steady room rental blows past that easily, so assume you're reporting it.
The upside is that against that income you get to deduct a fair share of your home's expenses, which often makes the net taxable amount much smaller than the gross rent.
The Allocation Principle
Here's the core idea: when you rent part of your home, you split expenses between the personal portion (your living space) and the rental portion (the tenant's space). You can only deduct the rental share. There are two common ways to allocate:
- By square footage: if the rented room plus a fair share of common areas is, say, 25% of the home's square footage, you allocate 25% of shared expenses to the rental.
- By number of rooms: if you rent 1 of 5 comparable rooms, roughly 20%.
Pick a reasonable, defensible method and apply it consistently.
What You Can Deduct (the Rental Share Of)
- Mortgage interest and property taxes (the rental portion goes on Schedule E; the rest stays on Schedule A if you itemize)
- Homeowners insurance
- Utilities — electricity, gas, water, internet
- Repairs and maintenance (a repair to a shared system is allocated; a repair only to the rented room is fully deductible)
- Depreciation on the rental portion of the home (more on this below)
Expenses tied exclusively to the rented space — say, repainting just that room or buying furniture for it — are generally 100% deductible against the rental income.
Depreciation: The Double-Edged Deduction
You can depreciate the rental portion of your home's value (the building, not the land) over time, which creates a yearly paper deduction that lowers your taxable rental income. It's valuable while you own the home. The catch is depreciation recapture: when you sell, the IRS effectively "claws back" the depreciation you took (or were allowed to take) and taxes it. So depreciation is a real benefit, but it isn't free money — plan for the recapture at sale.
How It Affects Selling Your Home
This is the part that surprises people. The capital gains home-sale exclusion (up to $250,000 single / $500,000 married) generally still applies to the personal-use portion of your home. But the rental portion can complicate that, and depreciation you took will be recaptured and taxed regardless. The interaction between renting a room and the home-sale exclusion is nuanced — if you plan to rent for years and then sell, read our capital gains on home sale guide and talk to a tax pro before you sell, because the timing and allocation matter.
Short-Term Room Rentals Are Different
Renting a room by the night (the short-stay model) can trigger different rules — potentially self-employment considerations if you provide hotel-like services, plus local lodging taxes and occupancy permits. If that's your plan, our short-term rental investment guide covers those wrinkles. The straightforward, lower-hassle path for most homeowners is a longer-term room rental.
Don't Forget Insurance and Local Rules
A standard homeowners policy may not fully cover a paying tenant's presence or liability. Tell your insurer — you may need a rider or a different policy. And many cities have rules on rentals, occupancy, and permits. Getting these right protects both your coverage and your deductions.
Practical Recordkeeping
- Keep a clean log of rent received.
- Save every receipt for home expenses, utilities, and repairs.
- Document your square-footage or room-count allocation method.
- Track depreciation from year one so the recapture isn't a surprise at sale.
- Consider a separate bank account for rental income and expenses to keep it clean.
Frequently Asked Questions
Do I have to report income from a roommate?
Yes, if you're renting the space for income, that rent is taxable and reported on your return. The narrow exception is renting your home fewer than 15 days a year, which a steady room rental exceeds.
What can I deduct when renting out a room?
The rental share of mortgage interest, property taxes, insurance, utilities, repairs, and depreciation — allocated by square footage or room count — plus 100% of expenses tied only to the rented space.
What is depreciation recapture?
When you sell, the IRS taxes back the depreciation you took (or could have taken) on the rental portion. Depreciation lowers taxes while you own, but plan for the recapture at sale.
Will renting a room affect my home-sale tax exclusion?
The personal-use portion generally still qualifies for the exclusion, but the rental portion and any depreciation complicate it. Review the rules and consult a tax professional before selling.