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March 11, 2022

Watch for tax pitfalls when taking in boarders

It seems that some cash strapped families are listing their spare rooms on rental websites like Airbnb.com or 9flats.com, which help you to rent a room in your home for short periods to make some extra cash.

Lost privacy and the possibility of choosing a noisy or messy tenant mean that taking in boarders isn't likely to be everyone's first choice. But taking in students, overnight travellers, or airline employees looking for a "crash pad" can work, particularly if you've had kids of your own.

Be careful though. As soon as you rent out part of your home, you've changed the use of that part from your primary residence to a rental property, the folks at Turbo Tax advise.

Accordingly, during the time that you own and rent out space in your home, you'll need to claim that rental income on your tax return. You'll also have to let your insurance company know that things have changed a bit.

You can claim proportional expenses — such as taxes, insurance, minor repairs and maintenance and interest expenses — incurred to earn that rental income though.

When you sell your home or stop renting a portion of it, you may be required to report a corresponding capital gain. To avoid paying significant capital gains, Turbo Tax suggests:

  • Ensure that the rented area of your home is small, relative to the rest of your home.
  • Avoid making significant structural changes to your home to create the rental space.
  • Don't claim capital cost allowances on the rented area in the first place.

Have you ever rented out space in your home? How did things work out?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...