Oregon takes first step to giving tax breaks to homeowners who rent out rooms

Oregon moved a step closer Tuesday to giving homeowners tax breaks for renting out rooms in their houses.

House Bill 3032 would allow homeowners to subtract up to $12,000 per rented room from their state taxable income each year. The House Committee on Housing and Homelessness endorsed the measure on a 9-1 vote; it still needs approval from a second committee before it could be voted on by the full House. 

Legislative analysts haven’t yet calculated the potential costs to the state in missing tax revenue. But Rep. Maxine Dexter, D-Portland, said Tuesday that it would cost Oregon more to build affordable homes than encourage people to rent out rooms. 

“At this moment in time, we have a housing crisis,” Dexter said. “We’re seeing a lot of folks implementing or using the homeshare option, and I think a lot of those folks are low-income. The tax impact or the revenue impact is always going to be a concern, but the building of new housing for those individuals would be a greater cost to the state.” 

Rep. Jami Cate, R-Lebanon, was the only committee member to vote against the bill. She said she was concerned that it lacks clarity and could result in people abusing the law, such as homeowners claiming they’re  renting to family members just to get a tax break. 

As written, the bill doesn’t preclude parents charging their adult children rent, for instance. Proponents contend that that’s a selling point: Adult children living at their parents’ homes won’t take up an apartment needed by someone else. Oregon is now short roughly 110,000 houses or apartment units. 

People would only qualify for the tax break if they rented a room to the same person for at least three consecutive months and charged less than $1,000 per month in rent. 

About 1.5 million owner-occupied Oregon homes have at least one vacant bedroom, according to Home Share Oregon, a Portland-based nonprofit that encourages sharing homes and helps connect people who want to rent rooms with people with extra rooms. The organization describes home-sharing as a way to provide shelter for thousands of people while helping owners, particularly older adults, afford their mortgage payments. 

The organization’s executive director, Tess Fields, told lawmakers during a committee hearing in January that about 800 homeowners and 3,000 renters have signed up to participate in the program since it launched a year ago. 

The bill’s supporters include groups that work with older adults, such as AARP and Meals on Wheels People. Representatives from those organizations described it as a way to help older people afford to remain in their communities and reduce negative effects of isolation. 

It’s also supported by America’s Service Commissions, the organization that runs the Americorps program and stations volunteers in Oregon and other states for year-long terms. Close to two-thirds of the Americorps volunteers in Oregon in 2021 struggled to find safe, affordable housing, America’s Service Commissions CEO Kaira Esgate told lawmakers in a letter. 

But tenant advocates are skeptical, noting that people who rent rooms have fewer rights under Oregon law than those who rent full homes or apartments. A 2019 law prohibits landlords from evicting tenants without cause after the first year of residency, except in limited circumstances such as a building being uninhabitable. That law doesn’t apply when landlords rent rooms in their homes. 

A Portland ordinance that requires landlords to pay some tenant moving expenses if they change lease terms, raise rent by 10% or more or don’t renew a lease also doesn’t apply in cases where the tenant lives with the landlord.

Alli Sayre, the organizing coordinator for Portland Tenants United, told committee members that the bill is a handout to rich homeowners that leaves renters without housing stability. 

“I have lived with my landlord before,” Sayre said. “It is like living with your parents. It is not a long-term housing situation for most people. In exchange for the inconvenience, the tenant ostensibly gets cheaper rent.”

Sayre added that landlords already can deduct their mortgage interest payments from their state taxes – that deduction cost the state close to $1.1 billion in the current two-year budget cycle. There’s no similar tax break for renters, though a trio of Republican senators introduced a bill to allow renters to deduct up to $5,000 from their taxable income when filing state taxes. That bill hasn’t been scheduled for a committee hearing. 

“It is completely nonsensical to allow a landlord who is already using the rental income to pay their mortgage, from which they can deduct mortgage interest, to double dip by claiming a second deduction on the income itself,” Sayre said. 

House Majority Leader Julie Fahey, who voted for the measure on Tuesday, said she was conflicted about the vote. If the goal is to reward people who are already renting out rooms, it accomplishes that, she said. 

“But if the goal is to result in more people renting out a room, I’m not sure that this is the right tool for that,” Fahey said.