By Carole Ellis
We’re hearing a lot about the affordability crisis in the news thanks to skyrocketing rents and rising home prices. If you are currently renting and wishing that you could catch a break on your taxes even though you don’t pay a mortgage, then you might soon be in luck. According to Florida democrat Alan Grayson, a member of the House of Representatives, renters should get a tax break for their housing costs just like homeowners.
He believes that renters should be able to deduct their rent payments from their federal taxes, possibly saving more than $4,000 a year. By comparison, homeowners in a similar tax bracket presently can save about $2,500 if they deduct the maximum amount of interest. “Renters should be able to share the tax savings,” said Grayson, arguing that in principal his proposal is no different from homeowners getting to deduct property taxes and mortgage interest on their taxes.
Critics of the bill warn that making these tax deductions available to everyone could remove a strong incentive to become a homeowner, but proponents argue that it might actually boost the population of ready-and-able buyers because that $4,000 a year could go a long way toward helping renters save up a down payment.
More than one in every three households in the United States is presently renting, according to the Harvard Joint Center for Housing Studies (HJCHS), and about half of those renters are estimated to be “cost-burdened,” meaning that they pay one-third or more of their annual income on housing. Although there are a number of support programs for cost-burdened renters, they usually exist at a state level.
Note by the SB editor:
Taxpayers who take a standard deduction cannot claim rent payments on their federal tax return. However, if you’re self-employed and rent dedicated office space or have a home office – then the IRS allows you to deduct all or a portion of your rent if certain criteria are met. The IRS is very clear regarding who may claim deductions of rent payments on taxes. Renters can’t deduct mortgage interest or property taxes on their rental like homeowners, because they do not own the property. But, if your lease agreement states that some of your rent goes towards property taxes, then you are able to deduct this amount on your personal tax return.
* This article was written in March 2016 and the note above was included in June 2018.
* *Carole Ellis is editor in chief of the Bryan Ellis Investing Letter, and provides though-provoking analysis and commentary on news topics relevant to serious real estate investors.