Tax Treatment of Home Renters: Possible Deductions and Credits

Introduction

Renters often assume they have no tax benefits tied to housing. That’s not entirely true. While renters don’t get the federal mortgage interest deduction available to homeowners, there are several federal and state-level tax rules that can lower a renter’s tax bill when specific conditions are met. This article explains the most common and reliable options, shows who qualifies, and highlights documentation and audit risks. For federal guidance on the home office deduction and energy credits, see the IRS pages on the Home Office Deduction and the Residential Clean Energy Credit.

Key categories of tax benefit for renters

1) Home office deduction (self-employed and qualifying owners)

• Who can claim it: The home office deduction is available to self-employed taxpayers (Schedule C filers), owners of rental businesses, and certain unpaid or statutory employees—but not to most W‑2 employees working from home after the Tax Cuts and Jobs Act (TCJA) suspension of unreimbursed employee business expenses. For full IRS guidance, see IRS Publication 587 and the Home Office Deduction page.

• What you can deduct: If you use a part of your rented home ‘‘regularly and exclusively’’ for business, you may deduct either a simplified amount ($5 per square foot up to 300 sq. ft., maximum $1,500) or a proportionate share of actual expenses (rent, utilities, renter’s insurance, repairs allocated to the business space). You cannot deduct rent that covers space used for both personal and business activities; allocation must match the business-use percentage.

• Practical tip: Keep floor‑plan measurements, photos, and a log showing exclusive business use. In my practice I’ve seen claims rejected when clients used a corner of a living room both for Zoom calls and family activity—exclusive use is key.

• Internal resources: See our guide to the Home Office Deduction and a specific page on Home Office Rent Deduction for calculation examples and red flags.

2) State and local renter credits and rebates

• Overview: Some states and municipalities offer renter’s credits, rebates, or property tax relief that directly reduce state income tax or are paid as a local credit. These programs are designed to help low‑ and middle‑income renters or to offset local property tax burdens. Examples include California’s Renter’s Credit for eligible low‑income taxpayers and various New York state/local programs that provide relief to qualifying filers.

• How to find them: Check your state Department of Revenue or tax agency for eligibility rules, income limits, and required documentation. The Consumer Financial Protection Bureau also maintains renter resources that can point you to state programs and consumer guidance.

• Documentation: Keep copies of lease agreements, rent receipts, and proof of residency for the tax year. Many state forms require employer or income verification.

3) Residential energy incentives

• Federal credits: The Residential Clean Energy Credit (previously known as the solar investment tax credit) is available to taxpayers who own qualifying energy property installed at their primary residence. Renters rarely qualify because the credit generally requires ownership or a long‑term lease and the right to make the improvement. See the IRS Residential Clean Energy Credit page for current eligibility rules and qualifying technologies.

• State and local incentives: Renters who pay for upgrades (with landlord permission) or who participate in utility programs may be eligible for state rebates or point‑of‑sale credits. Many programs, however, are directed to property owners. If you participate in a community solar subscription or buy portable energy devices you own (and keep receipts), some state incentives or utility rebates may apply.

• Practical note: Coordinate with your landlord if you want to install equipment. In many cases the landlord must claim the credit or sign an agreement transferring benefits.

4) Moving expense deductions (limited)

• Military exception: Since the TCJA changes, moving expenses are deductible only for active‑duty military members who move due to a military order and permanent change of station. Non‑military taxpayers generally cannot claim moving expenses on their federal return for tax years 2018–2025. See IRS Publication 521 for details.

• State differences: A few states still allow moving expense deductions on the state return—check state rules.

5) Deductions or credits tied to rental‑business activity

• If you run a rental business (you’re the landlord) you can deduct ordinary and necessary expenses; however, a tenant cannot deduct the landlord’s expenses. Conversely, if you sublet a portion or run a business from your rental unit (for example, a daycare or Airbnb) separate rules on self‑employment and business deductions may apply.

Who is typically eligible?

• Self‑employed renters, gig workers, and small business owners: Best candidates for the home office deduction and business‑related write‑offs.

• Active‑duty military members: Eligible for moving expense deductions when the move is required by military order.

• Low‑ and moderate‑income renters in certain states or cities: May qualify for renter credits or rebates at the state or local level.

• Renters who install or own qualifying energy equipment: Potentially eligible for federal energy credits if they meet ownership and installation rules.

What renters cannot generally claim

• Mortgage interest deduction: Renters cannot claim the mortgage interest deduction because they do not hold mortgage debt on the rental property.

• Property tax deduction on the rental unit: Generally not deductible unless you are the property owner or running a rental business.

Common documentation and recordkeeping requirements

• Lease agreement and proof of rent paid (bank statements, canceled checks, rent receipts).

• Measurements, photos, and logs for home office use; receipts for business supplies and home improvements related to the business area.

• Utility bills and renter’s insurance statements when allocating shared expenses.

• Written agreements or landlord consent for any improvements or installations that could affect eligibility for credits.

Common mistakes and audit risks

• Misstating exclusive use for a home office: Using a room for mixed personal and business purposes is the most frequent cause of denial.

• Claiming energy credits without ownership or landlord consent: The IRS checks title and installation rights for many residential energy credits.

• Forgetting state‑level details: State rules often diverge from federal rules; claiming a state credit without meeting state residency or income tests will lead to adjustments.

State-by-state variety: why it matters

State rules vary widely. A renter in California, New York, Minnesota, or Oregon may have access to different credits, caps, or filing thresholds. Always consult the website of your state’s tax agency or contact a state tax helpline for specific forms and eligibility. Consumer advocacy organizations and local legal aid clinics can also help low‑income renters identify and claim state benefits.

Professional strategies I use with clients

• Start with eligibility: We confirm the filer’s employment status (self‑employed vs. employee) and ownership rights before running home office or energy‑credit calculations.

• Document early: Collect leases, receipts, and photos during the year. If a client installs equipment, we get written landlord consent and preserve invoices.

• Check state forms: I always review state tax forms before filing federal items that could affect state credits or liabilities.

• Consider a partial cost‑sharing agreement: For energy improvements, encourage tenants to negotiate cost‑sharing or benefit assignments with landlords so credits or rebates are properly allocated.

Practical examples (anonymized)

• Example 1: A freelance graphic designer who rents a two‑bedroom apartment uses one bedroom exclusively as an office (200 sq. ft. of a 900 sq. ft. apartment). Using the actual‑expense method, she allocated 22% of rent and utilities to business expense and reported the deduction on Schedule C with supporting floor plans and photographs. The deduction reduced her self‑employment taxable income and lowered both income and SE tax.

• Example 2: A household in New York City qualified for a local renter’s credit after providing lease and income documentation. The credit was claimed on their state return and reduced their state tax liability.

Further reading and internal resources

• Home Office Deduction (FinHelp): https://finhelp.io/glossary/home-office-deduction/
• Home Office Rent Deduction (FinHelp): https://finhelp.io/glossary/home-office-rent-deduction/
• Working From Home: Deductibility Rules for Remote Employees (FinHelp): https://finhelp.io/glossary/working-from-home-deductibility-rules-for-remote-employees/

Authoritative sources

• IRS — Home Office Deduction: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
• IRS — Residential Clean Energy Credit: https://www.irs.gov/credits-deductions/residential-clean-energy-credit
• IRS — Moving Expenses (Publication 521): https://www.irs.gov/publications/p521
• Consumer Financial Protection Bureau — Renting resources: https://www.consumerfinance.gov/consumer-tools/renters/

Frequently asked questions

Q: Can a W‑2 employee deduct a home office?
A: Generally no for tax years 2018–2025, unless you are a qualifying statutory employee or otherwise allowed under special rules (for example, some state returns or employer‑reimbursed arrangements).

Q: If my landlord paid for energy improvements, can I claim the credit?
A: Usually not. The taxpayer claiming the federal residential energy credit must be the owner of the equipment or property and meet IRS ownership rules. Work with your landlord if you expect to share costs and benefits.

Q: How will claiming a renter’s state credit affect my federal return?
A: Most state renter credits only affect state tax liability and do not change federal taxable income. Always check the state instructions.

Professional disclaimer

This article is educational and not individualized tax advice. Tax laws and state programs change; consult a qualified CPA or tax advisor for recommendations tailored to your facts. For federal rules, consult the IRS website and publications cited above.