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How to Rent Out Your Home Without Paying Taxes

By: , Contributor

Published on: Sep 15, 2019 | Updated on: Oct 03, 2019

Here’s how to legally avoid paying the IRS while taking in rental income.

Renting out your home lets secure an additional income stream that you can use to help pay off your mortgage or maintain that property. But most of the time, when you earn money, the IRS is entitled to part of it.

Usually, the same holds true when you rent out your home. You're generally required to report rental income on your taxes, and if you don't, you risk serious penalties if the IRS finds out.

But here's some good news -- if you're willing to only rent out your home for a limited period of time, you may manage to avoid taxes on your rental income. Here's how to pull that off:

The 14-day rule

Some people who rent out their homes do so on a full-time basis. For example, if you have a finished basement in your home, you might secure a long-term tenant who pays you rent every month.

On the other hand, if you're only looking to be a (very) part-time landlord, you can avoid taxes on your rental income if you rent out your property for 14 or fewer days per year. Those 14 days don't have to be consecutive; you just need to stick to that 14-day limit to not pay taxes on the income you take in.

There's also a second requirement: You have to use the home yourself for at least 14 days per year or at least 10% of the time you rent it out to other people.

It doesn't matter if you're renting out a single room in your home, or an entire house. Any day you take in rental income is considered one of the 14 you're entitled to before taxes kick in.

The benefits of renting your home short-term

Some property owners want steady, ongoing income. If you're one of them, 14 days of rent won't suffice. But if you're not desperate for consistent rental income, taking in short-term tenants can work out in your favor.

For one thing, if you're only looking to rent out your home for 14 or fewer days, you can make it available on prime weekends when you can command top dollar. For example, if you live near a beach, you can list your home for select weekends in July and August, when renters are more likely to pay a premium for it. Similarly, if you live near a ski resort, you can rent your home out during holiday weekends and profit more.

Renting your home on a short-term basis also means not having to be a full-time landlord. That's beneficial if you don't have the time or patience to deal with ongoing tenant issues.

Best of all, finding short-term renters is pretty easy these days thanks to sites like Airbnb, HomeAway, and Vrbo. Just be aware that if you list your home on these sites, they'll take a cut of your profits. But they're probably your best bet for attracting weekend tenants.

It's usually hard to get out of paying taxes. But if you only rent out your home for 14 days over the course of a year, you won't have to give the IRS a dime of the money you take in.

Be mindful of the 14-day rule if you're only looking for side income and you don't want to go through the hassle of reporting rental income when the time comes to file your tax return.

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