Figure out what to charge

As with a stand-alone apartment or house, the rent you can command depends on what you're offering and the location of your home. For example, you can charge more for a large room with a separate entrance and bath in a great neighborhood than a closet-sized space with a shared bathroom in a run-down area. Trolling Craigslist for "rooms & shares" should give you some idea of going rates. So, too, can a visit to a local college's housing department, where rooms might be advertised.

Talking with other local landlords can give you an idea of what kind of security deposit to charge and whether asking for first and last month's rent upfront is standard practice in your area.

Screen your prospective lodgers

Getting rid of a bad tenant is painful for any landlord. Imagine the stress if the person you're trying to shed is living in your own home.

"Screen carefully," advises Eva Rosenberg, a tax pro who has several clients who rent rooms in their homes. "It can take 90 days to evict someone, and they could be living with you the whole time."

One woman who rents out her converted garage advises investing time in phone interviews first.

"I never let them just come over to see it until I thoroughly interview on the phone. If they are too anxious and don't want to give me answers to my questions, they don't get to come and see it," she said. "I like to find out about them, see if we have similar lifestyles; that's always best when living with strangers. Find out how they live, what they do for fun, what their work ethics are. I will spend a half hour interviewing."

You'll want to get, and check, references from landlords and employers. You also may want to commission background and credit checks.

Good boundaries make good boarders

You'll need to come up with a set of house rules that cover common areas of conflict. Is smoking allowed? How about pets? What parts of the house are off-limits, and which are shared? Are utilities included, and can the lodger change the thermostat? How will meals be handled? Can the lodger cook and consume meals in her room? How about guests, including overnight guests? Where should the lodger park? What hours are set aside as "quiet time"?

And don't rely on verbal agreements, advises Manda Rae of The Colony, Texas, who rented two of her three bedrooms before she had a family and then rented a room to her sister in exchange for child care.

"The biggest thing, even with my sister, was to have EVERYTHING in writing. Think of every possible annoyance or potential for conflict and put it in the 'roommate agreement.' That way there is no pressure on you as a landlord when something comes up because both parties have agreed and signed the contract."

Take care of your taxes

Rental income is taxable income, but you can offset that by deducting a portion of your housing costs, said Rosenberg, who is also known as Tax Mama.

First, determine how much square footage is exclusively for the lodger's use (the size of the room and any other areas that are for his or her use alone). Then measure the size of any shared areas.

"Divide the shared areas by the number of people sharing the areas," Rosenberg said. For example, three family members plus one tenant means you divide the shared area by four.

"Add one-quarter of the shared area to the tenant's exclusive area. Divide the total rental area by the total square footage of the house."

If the lodger's rental area is 15% of the house, you can deduct 15% of home-related costs such as:

  • Mortgage interest
  • Property tax
  • Insurance
  • Utilities
  • Maintenance and repairs
  • Janitorial work
  • Pool service
  • Gardening work
  • Cable TV
  • Alarm service

You can deduct all the cost of any expense for the tenant's benefit, such as painting the room or fixing anything he or she broke.

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You'll also take depreciation on 15% of your home's value -- "just the building, not the land," Rosenberg advised. This depreciation can create some complications when you sell your home, because it reduces the amount of profit you can take tax-free from your home. For full details, talk to a tax professional.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.