While tenants cannot typically deduct rent payments, renters in Michigan have a few potential avenues by which they may be able to take a limited deduction or credit for rent paid to a landlord. Not all Michigan renters, however, are eligible: receiving a tax break for Michigan home rental payments requires either being below a certain income threshold with less than $50,000 in resources or maintaining a home office.
While rent payments themselves are not tax deductible in the state of Michigan, renters may be eligible for a Homestead Rebate. If the rental has a home office that is used for business, you'll also be able to deduct expenses related to that space on your taxes.
General Tax Deduction Rules
Typically, as a Michigan taxpayer you are not permitted to deduct an expenditure from your income taxes unless the expenditure has been defined specifically as tax deductible. For example, contributions to a qualified retirement account are in some cases tax deductible, as are contributions to charitable causes. Tax deductions are sought by taxpayers because they reduce taxable income: Less taxable income means a lower income tax bill.
No Federal Renter's Credit
There is no federal deduction or renter's credit for rental payments made by a Michigan housing tenant to a landlord. Meanwhile, homeowners are allowed to deduct mortgage interest costs, along with related expenses, as an itemized deduction on their federal tax returns, which can in some cases lower a homeowner's tax liability considerably. Homeowners are also permitted to deduct property taxes. This disparity in tax treatment exists even when the renter and homeowner live in similar properties in similar locations.
Michigan Homestead Property Tax Credit
While Michigan renters are not provided with any federal tax breaks for rental payments, they can sometimes take advantage of the Michigan Homestead Property Tax Credit. This credit is available both to homeowners and to renters, provided they live in a property for which property taxes are paid. The tax credit can be used only on Michigan state income taxes. Only those earning a household income of less than $135,000 are entitled to claim the credit.
Home Office Deduction
One method by which Michigan renters may be able to take a tax deduction for a rental property is to maintain a home office. The home office deduction is available to business owners who use a dedicated portion of their home for business purposes. The amount of rent that is deductible for a home office depends on the portion of a home used as an office. For example, if the home has 10 rooms and you use one for your office, you'll be able to deduct 10 percent of the monthly rent. Rules for the home office are strict and include a requirement that the home office be used exclusively for business purposes.
Wally Foster is a business attorney and entrepreneur who has been writing professionally since 2003. He has written for magazines including "Consumers Digest" and has contributed to several books published by Hundreds of Heads. Foster holds a Bachelor of Arts in English from Williams College and a law degree from Harvard.