For many people, rent is one of their biggest annual expenses and finding a way to deduct rent payments for taxable income would result in considerable tax savings. Nonetheless, deducting rent is very difficult, and residents of Ohio have even fewer options than those living in some other states.
No Federal Rent Credit
No federal tax deduction exists for the payment of rent to a landlord for a personal residence. This applies in Ohio as well as every other state. As a result, renters in Ohio and elsewhere must pay their housing expenses using after-tax income. The desire to provide a federal tax break for renters, as well as create more fairness between renters and those who own their homes, has led some legislators to support tax deductions for rent payments. At the time of publication, these efforts have yet to be successful.
State Renter's Credits
Some states offer a renter's credit that provides limited tax credits to those renting their homes. These credits may be limited to only those with certain incomes and generally have a cap that limits how much any renter can benefit. Nonetheless, these credits provide potential state income tax savings to residents of those states. Unfortunately, Ohio has no such renter's credit and there is no evidence to suggest that the state will enact one.
Buying vs. Renting
One of the reasons many renters believe they should receive a tax deduction is that homeowners already receive a substantial deduction for their residence in the form of the mortgage interest deduction. This deduction allows homeowners to deduct the interest portion of their mortgage payments from their taxable income, sizably reducing each year's tax obligations. While there are many factors that you should consider when deciding whether to rent or purchase a home in Ohio, this disparity in tax treatment can be important.
One situation in which an Ohio renter may be able to deduct some of her rent is when she is operating a home business on the property for which she is making rental payments. The home office deduction can be complex, but it essentially allows a business owner to deduct a percentage of home rental costs that is equivalent to the percentage of the home used as a home office. There are several stringent rules that you must follow for this deduction, including that you must use the home office 100 percent for business purposes.