Other than tax professionals, I can’t think of anyone who looks forward to tax season. For everybody else, April is a stressful month to collect information and meet deadlines.
While pulling together relevant tax documentation is a top priority, taxpayers should also be proactive to find ways to get tax relief.
How?
For federal taxes, you may be able to deduct any property taxes that you pay directly as a tenant.
If you work from home, you may also be eligible to deduct taxes for your home office. The federal criteria is strict though, so be sure to review the rules and to calculate your expenses accurately. The Internal Revenue Service has detailed information available to calculate the home office deduction.
Deducting Your Home Office as a Renter
There are two general rules that apply in these cases: 1) the area must be used exclusively for conducting business on a regular basis; and 2) the claimed location must generally be the principal place of business. For the latter portion to apply, the home office can still qualify even if the business takes place outside the home, but the administrative and management duties occur only in the home office. According to IRS Publication 587, some examples of these types of duties may be: maintaining records; ordering supplies; setting up appointments; and/or writing reports.
You can still be eligible for this deduction if you have a roommate or spouse that also claims the home office deduction -- just be sure that you are applying your calculation to different portions of the home!
In most cases, it is worthwhile to discuss these criteria with a tax professional as eligibility is targeted towards self-employed individuals using their home as their primary place of business. There are two ways to calculate this deduction but, in my experience, the calculations can be determined more accurately with the aid of a tax professional. One method is called the "simplified option" using a rate of $5 square foot for business use of the home. Alternatively, taxpayers can use the "regular method" which uses a percentage of the home that is used for business purposes. More specifically, your rented home should be the place where you conduct work on a daily basis. If you qualify, you may also be able to claim utility payments as well.
Disaster Relief
If disaster strikes, renters may also get some relief. For example, if there is a federally declared natural disaster, then there may be specific relief based on that circumstance.
Thankfully, it does not take a disaster to be eligible for a little tax help in most cases. Based on my experience, take a good look at your state tax department websites for available programs. In most cases, there is likely some relief available to taxpayers (as long as you are not claimed as a dependent on someone else’s tax return).
State and Local Tax Relief Programs for Renters
Every state has different requirements, but there are several general rules for states that have created tax relief for renters. Generally, tenants must provide proof of a leased property. It can be any type of home, including apartments and mobile homes. In order to claim any relief, the taxpayer must be the person paying rent and, in most cases, have their name on the lease. To be eligible, most states will also require proof of residency, sometimes for a period of 6 months or even the entire tax year.
For example, in my current home state of Maryland, the state offers a direct check payment of $1,000 to qualified renters! The requirements are easy and require basic information. Applicants need to submit a copy of their lease or proof of paid rent. In order to be eligible, renters must have a combined net worth less than $200,000. Other states, like Colorado and Connecticut, also offer tax rebates of up to $1,000 or more for renters meeting specific criteria.
When I lived in DC, I learned that citizens of our nation’s capital do get some benefits despite “taxation without representation.” For example, in DC, renters under certain income limits can file a form with the DC government to get a tax credit. Even if you do not need to file for taxes in DC, you can still receive this tax credit in the form of a rebate. The program even allows individuals to file for the previous three years so it is never too late to look up available programs.
In my experience, many jurisdictions offer a similar type of program, especially for seniors or individuals with disabilities. In some states, like California, tax relief is also available for certain tenants under a certain income level – even if the individuals were only renting for 6 months. Other states provide help for certain populations. For example, Arizona provides a tax credit based on rent or property taxes for eligible seniors.
Where else can renters look for relief? In Minnesota, renters can benefit from a refundable tax credit of up to $2,640, depending on their eligibility. The amount of the credit is typically based on how much estimated rent landlords charge to cover the of cost property taxes.
Every state may offer different types of tax credits for renters. While some tax software may identify different laws and regulations, state and local websites are good resources as well. Based on my research, many states offer benefits for low-income individuals and families if the total rent paid exceeds a percentage of their household income.
According to H&R Block, these states offer some form of tax relief for renters:
- Arizona
- California
- Colorado
- Connecticut
- District of Columbia (DC)
- Hawaii
- Indiana
- Iowa
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Missouri
- Montana
- New Jersey
- New Mexico
- New York
- North Dakota
- Pennsylvania
- Rhode Island
- Utah
- Vermont
- Wisconsin
If your state is not included on this list, contact your state’s department of revenue to confirm! Maybe your state has passed recent legislation…or maybe you’ll decide to move to a state that provides this type of help to tenants!
