Renting A Room in House

[cynabyte]

so I am discussing things with a friend of mine who owns a home and has a friend that is going to rent a room from him

He is currently married has two kids and is currently unemployed

(BTW he was fired because he carpooled with his brother who admitted to stealing from the company but the case was dropped. Should he pursue legal action?)

He is looking into getting out of the rat race

How should he handle the passive income from his tenant? Should he setup any type of business structure?

 

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[ProfessorSpeed]

I rented out two rooms in my house for two years. It was an excellent source of income for me before I got married, and it can be a huge wealth accelerator. Yes, it's a total hassle, but so is going to work everyday. I've definitely worked harder and longer for equal money.

That being said, I did not establish any formal business structure...I'm not sure doing so would really offer any asset protection in the case of renting rooms in your own house. Someone please correct me if I'm wrong. The HUGE benefit of renting rooms in your own home: the tax benefits! Your friend needs to keep a complete list of receipts / expenses incurred during the tax year. He can deduct a significant portion of these expenses off of his taxable income. The proportion is calculated using the square footage proportion of the rooms being rented. Be religious about this, it will pay off big time. My recommendation is to keep a binder as you go so you don't have to gather all of the info at the end of the year. You know you'll forget some expenses, and that's just wasting your hard earned money.

I would NOT recommend hiding this money from the IRS- it's illegal and just bad karma. Besides, I used the roommate situation to my benefit by fixing up the house, and most it it became tax deductible.

Another recommendation... Be sure to check with your insurance company to make sure a roommate situation is covered. That is, will they still cover your property if you have a roommate? Mine had provisions for two roommates at no extra expense, so that was nice. I kept the email reply from them just in case they ever tried to wiggle out of it later.

A word of advice for your friend: Be SURE he trusts this person...he could be putting the closest people he loves at risk. This is a MAJOR concern when perhaps it's a male roommate and wife and baby under the same roof.

 

[CarrieW]

make sure he signs a lease...and that everything agreed to is in there...

I cant stress that enough.

we had a guy from dh work rent a room here for about 3 months.

then he decided to skip out owing us money for rent and electric. we were going to let him go for the rent and just have him pay his portion on the electric.(200bucks)

He decided he didnt owe us anything and came with a truck to unload his stuff. So I called the cops. he had no proof of residency and the cops made him leave. he got 99% of his stuff. he left a fouton a hugh olympus weight set bench thing and a large punching bag.

so instead of trying to make arrangments with us to get his stuff(ie pay what he owed) he decided he was going to take us to court.(hey I got to go in front of the judge for free cause he paid the filing fee LOL)

we were forced into mediation before the hearing. He got all mad and screamed he didnt owe us anything and walked out of mediation.(I would have settled for the $200 ele bill at mediation too)

His father kept saying I was trying to rob his son! (the guy is 22 yrs old and couldnt go to court without his daddy)

Went to court on tuesday. I went after the entire amount. We were awarded $442 of the $642 he owed us and he has to pay in full before he gets his stuff. He should have just paid the ele and then he wouldnt have to pay 2x as much!

I havent heard anything from him yet I am trying to find out from the court how long he has before his stuff becomes our stuff and he still has to pay. I will file for wage garnishment if I have to! Because now I have a judgment against him!

We were very lucky the judge agreed with us. as we didnt have any lease in place...

and also extremely lucky the cops made him leave when they did or I would have had nothing of his at all and probably wouldnt ever have heard from him again!