When you Rent a Room, or any part of your Property,
you must separate expenses between rental use and
personal use

Tax Advantages to Renting a Room
If you are a homeowner that rents out part of your home, you get
the tax benefit of deducting a portion of your home ownership
expenses.  People that do not rent out a room do not receive this
tax break!  By renting a room in your house you are reducing
your income taxes which means you are increasing your
after-tax income!

If you rent part of your property (a room or a floor), you must divide
certain expenses between the part of the property used for rental
purposes and the part of the property used for personal purposes,
as though you actually had two pieces of property.

Tax Deductions for Renting a Room
When you rent a room in your personal residence you can deduct
expenses related to part of the property used for rental purposes. 
These deductions include the following:
 

Real Estate Taxes and Home Mortgage Interest   General Maintenance Expenses such as electricity, gas, HOA fees, general repairs to appliances that are available to the whole house (ie over, refrigerator, water heater, etc..)   Expenses tied directly to the room itself.  Examples would be installing a phone line or cable line directly into the room.   Depreciation on the part of your residence used for rental purposes

Dividing Expenses
If an expense is for both rental use and personal use, such as
home mortgage interest or electricity for the entire house, you must
divide the expenses between rental and personal use.  You can
use any method for dividing expenses.  The two most common
methods for dividing an expense are one based on the number of
rooms in your home and one based on the square footage of your
home. 

Example: Eric rents out a room in his 3 bedroom house to
Johnson.  The room is 20 x 10 feet, or 200 square feet.  Eric's entire
house is 2000 square feet.  Eric can deduct as a rental expense
10% of any expense that must be divided between rental use and
personal use.  If Eric's electrical bill was $800 for the entire house in
2005, he can deduct $80 ($800 x 10%) as a rental expense.  The
balance, $720, is a personal expense that he cannot deduct.

If Eric has a home office, he can claim a greater deduction.  Let's
assume Eric 's 3rd room is an office.  The office is 15 x 10 feet, or
150 square feet.  This is 7.5% of his house (150 square feet / 2000
square feet).  Eric can deduct $140 of the electrical bill for the year
($800 x 7.5% as a business expense and $800 x 10% as a rental
expense).  

Note that you do not have to divide expenses that belong only to
the rental part of your property.  For example, if you paint a room
that you rent, of if you pay premiums for liability insurance in
connection with renting a room in your home, your entire cost is a
rental expense. 

Expenses That Can be Fully Deducted
There are expenses that can be fully deducted and do not have to
be divided between personal and rental use.  This would include
the installation of a separate phone line running into the rental room
or the installation of a cable line.  In these cases, you can deduct
100% of the cost as a rental expense.

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