Renting out part of your home, or working from it: how the costs divide

Two kinds of cost: one part, or the whole place

Every cost at a shared home falls into one of two groups. Some belong to one part only: a lock on the tenant’s door, a desk for the study, new carpet in your own bedroom. Those go to that part in full — claimable if the part earns income, not if it is private. Others serve the whole place: rates, insurance, the loan, the electricity bill for the house. Those are divided, and only the income-earning share of them is claimable.

The usual measure for that share is floor area. The Australian Taxation Office works it as the area used only by the tenant plus a reasonable part of the common areas, over the area of the whole home. Canada’s own worked example puts the same rule in one line: rent out 4 rooms of a 10-room house and you deduct everything for the rented rooms, plus 40% of the costs for the whole building. Time can matter too — a room let for half the year earns a share for half the year.

Working from home adds a third part to the same arithmetic. If the study is used only for the business, its floor-area share of the whole-home costs is a business cost, reported with the business rather than with the rent. That is why a single percentage per bill cannot describe the house: the same rates notice can be part rental, part business and part private at once.

Rent is never split by floor area

The division runs one way. A tenant who pays for a room pays rental income, in full, however small the room is — there is no private share of it to take out. The same is true of money a business receives: it is business income whole. Only costs are divided.

If you own the home with someone, the ownership share applies before anything else. Co-owners generally each report their own share of the rent and their own share of the costs, so a half owner of a home with a room let out reports half the rent and half of the rental share of each cost — not the whole of either. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.

Where your country changes the picture

Australia treats the rent as assessable income and the income-earning share of the costs as deductible, on the floor-area basis above. The cost that surprises people comes later: once part of a home has earned income, only part of it keeps the main residence exemption from capital gains tax when you sell. The contract date of the home matters too for the negative gearing changes announced in the 2026–27 Budget, covered in what an investment property costs to hold.

The United Kingdom offers a simpler route for a lodger in your own home: the Rent a Room Scheme lets you earn up to £7,500 a year tax-free from letting furnished accommodation in your home, halved to £3,750 if the income is shared. Above that you can use the scheme’s threshold as an allowance or work out actual profit instead; if you account for it as a normal property business, mortgage interest is relieved by a 20% tax reduction rather than deducted.

In the United States, the rented part goes on Schedule E and its share of the whole-home costs is divided the same way; a business use of the home is worked out separately on Form 8829. In Canada, the T776 follows the rooms-and-building rule quoted above, and capital cost allowance on the rented part can never create or increase a rental loss. Elsewhere the principle of full costs for one part and a share of the whole usually holds, but the forms and the limits do not — which is the conversation to have with an accountant where you file. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.

What to keep while it is happening

The shares you use need evidence behind them: a floor plan or measurements for the areas, the dates a room was let, and the tenancy agreement or lodger arrangement. Keep the evidence for the business part the same way. None of it is hard to gather on the day and all of it is hard to reconstruct years later, when the question arrives on the sale of the house.

Receipts for one part are easiest to defend when they are kept with the payment they back, rather than in a folder by year. Organising receipts as they arrive takes seconds per receipt, and a desk or a lock is far easier to place in the right part while you still remember which door it went on.