Is Rent Tax Deductible?

Is Rent Tax Deductible?

Tax is an important revenue that is collected by any government. In a Federal or Unitary democratic system, such as the United States of America, which happens to be a Federal form of democracy, the Central or the Federal government collects a tax that is titled as ‘income tax’, which is its primary mode of taxation. On the other hand, there are some taxes such as property tax that is collected by the local and state governments. Everyone has to pay these and many other taxes. However, there is reprieve in the form of tax deductions. The same is the case with rent.

Income tax in the United States of America is collected by the Federal agency, Internal Revenue Service, which is also commonly referred to as the IRS. The IRS has made two tax deduction provisions in order to curb the burden of taxpayers. These deductions have basically been made so that tax payers can reduce some important expenditures such as medical expenses from their income bracket, which is also known as taxable income.

Taxable income is calculated by totaling the annual income and subtracting deductible expenditures from it. As mentioned above, these deductions can be made in two ways―standard deductions and itemized deductions. In the IRS tax deductions list, you will notice that itemized tax deductions have to be claimed by providing a legitimate proof of expenditures. Standard deductions, on the other hand, are deducted on the recommendations of the IRS. Standard deductions are uniform for all income tax filers. It must be noted that a tax payer can avail only one type of deduction (standard or itemized).

Coming back to the deductions of taxes, rent, as an expenditure, cannot be claimed as deductible expenditure. There are however some provisions for income tax rent deductions.

Rent Tax Credit
As mentioned above, from the point of view of the IRS, rent is not a deductible expenditure. However, if you fulfill some requirements, there are situations where you shall able to claim a deduction for rent.

State Tax Deductions
The portfolio of real estate taxation in the United States is usually handled by local authorities and state governments. Property taxes by state are basically decided by local governing bodies upon market prices of homes and real estates. On the basis of these surveys, states can grant rent deductions to taxpayers for state taxes, especially if the rent is above the prescribed fair rent limit. In order to claim proper deductions, you will have to consult a properly qualified and experienced tax relief attorney, who will help you file for deductions.

Federal Tax Rent Deduction
The IRS does not make any separate provision for deduction of rent of individual tax payers. On the other hand, rent that has been paid for business purposes is easily deductible. This basically includes the rent that has to be paid for business purposes, and can be any rent which ranges from real estate rent to lease on equipment. However, sufficient proof has to be provided while filing an income tax return. In addition to that, you will have to avail itemized tax deduction in order to claim rent deductions.

The best way to properly file for such deductions is to consult a tax attorney/accountant. Filing under the right provisions is an important necessity, and consequences of wrongful filings are quite dire.