I rented one room in my house. How do I report the income?

If you rent out a room or portion of your home, the rental income is generally reported on Schedule E (Form 1040), Supplemental Income and Loss. Because only part of the home is used as a rental property, you'll need to divide many household expenses between personal use and rental use. This is known as allocating or prorating expenses.

Common expenses that may need to be allocated include:

The method you use to allocate expenses depends on how the rented area is used.

If the rental area contains its own:

the IRS generally considers it a separate dwelling unit.

Suppose your property includes a loft apartment with its own kitchen, bathroom, and sleeping area. Because it functions as a self-contained living space, it is considered a separate dwelling unit. For a separate dwelling unit, rental expenses are generally limited based on the percentage of time the unit is rented at a fair rental price during the year.

To determine the rental-use percentage:

Days rented ÷ Total days in the year

55 ÷ 365 = 15.1% rental use

In this example, approximately 15.1% of the allocable expenses would be treated as rental expenses.

Any expenses related to your personal use of the property are generally not deductible on Schedule E, although some expenses such as mortgage interest and property taxes may qualify as itemized deductions on Schedule A if you itemize.

A different rule may apply if:

In this situation, expenses are typically allocated based on the percentage of the home's square footage devoted to rental use.

250 ÷ 1,200 = 20.8% rental use

You would generally allocate 20.8% of eligible household expenses to the rental activity.

If you use the room for both personal and rental purposes, you may need to apply both a square-footage allocation and a time-based allocation.

Personal use becomes important when you use the rental space for more than:

whichever is greater.

Step 1: Determine the percentage of your home used for rental purposes based on square footage.

Step 2: Determine the rental-use percentage based on the number of days the room was rented.

Step 3: Multiply the prorated home expenses by the rental-use percentage.

You would first apply the 20.8% square-footage allocation and then apply the 32.9% rental-use allocation to determine the allowable rental expense deduction.

Rental income and deductible rental expenses should generally be reported on Schedule E.

When entering the property in the program:

The program will use the information you provide to calculate your rental income or loss.