What Is the Renter’s Tax Credit (RTC)?

The Renter’s Tax Credit (RTC) is a state-level tax benefit designed to provide financial relief to individuals who pay rent for their primary residence. Its main purpose is to lessen the financial burden on renters, who indirectly contribute to property taxes through their monthly rent payments. Because the RTC is administered at the state level, its availability, rules, and the amount of the credit can differ substantially from one state to another. Not every state offers this type of credit.

For states that do offer an RTC, it can be structured as either a refundable or nonrefundable credit. A nonrefundable credit can reduce your state income tax liability to zero, but you will not receive any excess amount as a refund. A refundable credit, however, can be paid out to you even if you have no tax liability. Renters must consult their specific state’s tax agency for the definitive rules and forms applicable to them.

Eligibility Requirements for the RTC

Income Limitations

Eligibility for the Renter’s Tax Credit is tied to the taxpayer’s income level, ensuring the benefit is directed toward those with lower to moderate incomes. States establish specific Adjusted Gross Income (AGI) thresholds that vary based on filing status. For instance, a single filer will have a lower AGI limit than a married couple filing jointly or an individual filing as head of household.

To illustrate, a state might set the AGI limit for a single individual at $45,000 and for a married couple filing jointly at $90,000. If a single renter’s AGI is $45,001, they would be ineligible for the credit. Renters must accurately calculate their AGI as reported on their state tax return before determining if they meet this qualification. These thresholds are subject to change annually based on new legislation or inflation adjustments.

Residency and Property Qualifications

Beyond income, specific requirements related to residency and the type of property rented must be met. A renter must have been a resident of the state for the entire tax year to qualify. Some states may have provisions for part-year residents, but this often involves more complex calculations. The rented property must be the individual’s principal residence, meaning the place they live for the majority of the year.

The property must also be subject to local property taxes. Renters living in properties that are exempt from property taxes, such as certain types of government-owned housing or properties owned by some non-profit organizations, are not eligible for the credit.

Disqualifying Factors

Several conditions can prevent an otherwise eligible renter from claiming the credit. A common disqualifier is being claimed as a dependent on another person’s tax return. This rule prevents students, for example, who are supported by their parents from claiming a credit that is intended for financially independent households. If a renter can be claimed as a dependent, they are ineligible even if the person who could claim them chooses not to.

Another disqualifying factor is living in certain types of housing. Residents of university dormitories, military barracks, and other tax-exempt facilities are typically ineligible. Similarly, if a renter receives other forms of housing assistance, such as a Section 8 voucher or other rental subsidies, they may not be able to claim the credit. Finally, in the case of married couples, only one spouse can claim the credit; they cannot both claim it separately for the same residence.

Calculating the Credit Amount

The method for calculating a Renter’s Tax Credit varies significantly by state. While some states may offer a small, flat credit amount, many use a more complex formula based on the renter’s income and the amount of rent paid during the year. For example, Maryland calculates its credit based on the relationship between rent and income, with the calculation starting at 15% of the total annual rent, up to a maximum credit of $1,000. Minnesota’s credit is also calculated based on income and rent paid, with a maximum credit of $2,640 for the 2024 tax year.

A primary aspect of the RTC is whether it is a refundable or nonrefundable credit. Many states, including Maryland and Minnesota, offer a refundable credit. This means you can receive the full credit amount as a refund, even if it is larger than the tax you owe. For instance, if you owe no state tax but qualify for a $500 refundable credit, you will receive a $500 payment. If a credit is nonrefundable, it can only reduce your tax bill to zero, and you do not receive any excess amount.

When multiple unrelated individuals share a rented property, the handling of the credit depends on state rules. Each roommate who meets the eligibility requirements on their own can claim the credit. They would file for their own credit based on their individual circumstances, such as their portion of the rent paid and their personal AGI.

Required Information and Documentation

To successfully claim the Renter’s Tax Credit, you must gather specific information before you begin preparing your tax return. The primary pieces of information are the name, address, and phone number of your landlord or property management company. You will also need the total amount of rent you paid during the tax year. This figure should only include payments for occupancy and not for other services like utilities, parking, or laundry.

The credit is claimed on a specific form that is part of your state income tax return. For example, renters in Minnesota use Schedule M1RENT, which is filed with the main income tax return. You must obtain the correct, current-year version of this form, which is available for download from your state’s department of revenue or taxation website.

Once you have the form and the necessary information, you will transfer the data into the appropriate fields. The form will have designated sections for your landlord’s information and the rental property’s address. You will also enter your total rent paid for the year.

While you are not usually required to submit proof of your rent payments, such as canceled checks or bank statements, with your tax return, you must keep these documents for your records. State tax agencies have the authority to audit your return and may request this documentation to verify your claim. It is advisable to keep these records for at least three to four years after you file your return.

How to Claim the Credit

The process of claiming the Renter’s Tax Credit involves submitting the specific RTC form along with your annual state income tax return. If you are using tax preparation software to e-file, the program will typically ask you a series of questions to determine your eligibility for the credit. If you qualify, the software will automatically populate the necessary form and include it with your electronic submission.

For those who file their taxes by mail, the process is more manual. You must complete the physical RTC form and attach it to your main state tax return. Failing to attach the RTC form or placing it incorrectly in the packet can lead to the credit being denied or your return being sent back for correction.

After you have filed your return, the Renter’s Tax Credit is applied against your total state tax liability. If you owe taxes, the credit will directly reduce the amount you have to pay. For example, if your tax liability is $200 and you qualify for a $60 credit, your new tax bill will be $140.

If the credit is refundable and its amount exceeds your tax liability, the difference will be added to your state tax refund. The processing of the credit happens as part of the overall processing of your state tax return, and you will see the result reflected in your final refund amount or tax-due notice.