What about a renter's tax credit? After all, homeowners can get some pretty incredible tax breaks — they may be able to deduct some or all of their property taxes and mortgage interest. They can even possibly exclude up to $250,000 ($500,000 if married) of gain when selling their primary residence.
But did you know that a handful of states actually offer a rent tax deduction that can put cash back in your pocket when doing your taxes? It's true, and if you're looking for a renter's tax credit, we'll tell you what you need to know.
Who can claim the renter's tax credit?
While the rules vary from state to state, there are a few things that remain somewhat consistent across state lines when it comes to eligibility for a renter's tax credit. Basic baseline requirements often include:
- Being a resident of the state in which you rent
- Your name must be on the lease, making you legally responsible for paying rent
- Not being claimed as a dependent on somebody else's return
- Your property owner paying taxes on the property in which you rented. This may sound random, but the fact is that in nearly all states that offer some kind of tax benefit for renters, one purpose for the credit is to mitigate the effect of rising property taxes getting passed on from owners to their tenants.
This baseline is just the beginning, and each state has its own set of rules when it comes to a rent tax deduction. Understanding the specifics within your own state is imperative.
Claiming rent vs. renter's tax deduction
As you work through your taxes and calculate where you take deductions, it's worthwhile to mention what you can't claim. Even though you're able to take a rent tax deduction, you cannot claim the rent you pay each month on your tax return.
The only scenario where it's OK to claim a portion of your monthly rent is if you use your property for a trade or business. Even then, you can only deduct the area used specifically for work. Taking this deduction also has specific requirements you must meet.
Renter's tax credit — with a catch
Some states only offer tax benefits to renters who are older (for example, aged 65 and up) and/or disabled. The credit can help people within specific demographics where it might be harder to financially support themselves. These are the states with such benefits:
- North Dakota
- Rhode Island
However, there are other states that offer a general renter's tax benefit not limited by age or disability status.
Rent tax deductions for the masses
For those who don't have a pre-qualifier to entitle them to a renter's tax credit, it's primarily income that decides it. Many states allow you to claim a credit if your rent is above a certain percentage of your total income. This can make you a cost-burdened renter, and the tax credit can help ease some of your financial burdens. It also helps make housing more affordable on the whole.
These states have worked out their own formulas for awarding a renter's tax credit to eligible tenants.
- California: In California, renters who pay rent for at least half the year, and make less than a certain amount (currently $43,533 for single filers and $87,066 for married filers) may be eligible for a tax credit of $60 or $120, respectively
- Hawaii: Hawaii renters who make less than $30,000 per year and pay at least $1,000 in rent for their principal residence are eligible for a tax credit. However, they have to live in a property subject to real property taxes.
- Indiana: Renters in Indiana may be eligible to deduct up to $3,000 if the place they rent is subject to Indiana property tax. You can claim the total rent you paid or $3,000, whichever is less.
- Maine: Subject to certain income limitations based on household size, Maine renters can get what's known as a property tax fairness credit. This applies to both renters and homeowners who meet the criteria and aren't a married couple filing their taxes separately.
- Maryland: In Maryland, renters use a helpful chart and step-by-step process to calculate their potential renter's tax credit. Maxing out at $1,000, the formula requires you to know your total income for the year to find your tax limit. From there, you do a little math using 15 percent of the total rent paid within the tax year.
- Massachusetts: Rent deductions in Massachusetts are limited to 50 percent of the rent paid during the year, up to a maximum of $3,000.
- Michigan: Renters in Michigan may qualify for the Homestead Property Tax Credit based on the difference between the property taxes you pay as an owner/estimated to pay as a renter and your “total household resources," which include the total income, taxable and nontaxable, of everyone maintaining the household
- Minnesota: Minnesota renters qualify for a renter's property tax refund if they meet specific criteria, including having a household income under a certain amount (in 2020 it was less than $62,960.) You'll need to obtain a Certificate of Rent Paid from your property owner in order to claim the credit. They're required to give it to you by Jan. 31, so reach out if you don't receive it.
- New Jersey: The New Jersey tax benefit is interesting because it gives renters a choice as to whether they would prefer a deduction of 18% of rent paid, up to $15,000, or a credit of $50 on their tax return. To determine which option would put more money in your pocket, you have to do the math.
- New York: If you live in Manhattan, you may laugh at this, but New York State offers a potential $75 credit to renters if your average monthly rent is $450 or less. If at least one member of your household is 65 or over, the credit bumps up to as much as $375.
- Vermont: Vermont's Renter Rebate Program refunds eligible renters a portion of the rent they paid if it exceeds an established percentage of household income. It's also only available to renters making $47,000, or less, per year.
- Washington, D.C.: With the Individual Income Property Tax credit, Washington, D.C., offers renters with a household income of $20,000 or less a credit of up to $750.
- Wisconsin: Wisconsin offers credit to renters with less than $24,680 in household income. You're also eligible if disabled or 62 years age or older by the end of the tax year. The maximum credit is $1,168. Like in Minnesota, you'll need to get a certificate of rent paid from the property owner before becoming eligible.
Should you take the renter's tax credit?
When it comes to tax credits of any kind, our verdict is that you should typically take the government up on all offers for free money. Even if that means your taxes get a little more complex to prepare, it just might be worth the money back to hire someone to prepare your taxes. Especially when money is tight, think of the boost to your budget a nice tax refund could provide.