You can legally rent out a basement apartment as long as you are in compliance with a number of rules and guidelines. This includes building requirements, zoning laws, HOA rules, and more.
What are the Legal Requirements for a Basement Apartment?
Follow these requirements in order to have a legal basement apartment:
- Building Requirements
- State and Local Zoning Laws
- Certificate of Occupancy
- Warranty of Habitability
- Landlord Tenant Rights
Basement apartments must meet standards for living spaces. This varies between states and local building codes. Here’s a list of general building requirements:
|500 – 1,000 square feet
|Must lead to the outdoors in case of fire
|70 square feet
|Full bathroom (shower, sink, and toilet)
|30 – 36 square feet
|Full bathroom (bath, sink, and toilet)
|40 square feet
|Half bathroom (sink and toilet)
|15 square feet
|6’8” – 8’6”
|1 20” x 24” per room
|Waterproofing and fireproofing
|Heating, air, and electricity
State and Local Zoning Laws
State and local governments set their own zoning laws to determine what types of properties can exist in each area.
Talk to a landlord-tenant lawyer in your area to understand if you’re legally allowed to turn your basement into an apartment, and if there are specific requirements you must comply with.
In Chicago, your property must be at least 20 years old to convert your basement.
Most areas require homeowners to get a permit before a major renovation. This helps to ensure that your plans meet zoning and code requirements. If your plans don’t meet the requirements, it allows you a chance to change them before any work is done.
Permits are also important because if you choose to sell your home, buyers will want to know the home is structurally sound. Unpermitted work cannot be included in the square footage in the sale of the home, causing you to miss out on money. Buyers may also be held liable for repairs down the road, affecting your bargaining power.
Permits are essential to keep you safe and your home functional.
Certificate of Occupancy
If you complete a major renovation or have a change in property type, you will need a new certificate of occupancy. This ensures that the structure meets code requirements.
To get a certificate of occupancy, you will need to check with your local government for the process. Generally, you will need to fill out a form, pay a fee, and have an inspection.
Inspections may include:
- Doors and windows
- Fire safety
Warranty of Habitability
Landlords in nearly every state are required to keep apartments safe and livable (“warranty of habitability”). Specific requirements vary but generally include:
- Functioning gas/plumbing
- Smoke alarms
- Free of pests, trash, and rodents
Landlord Tenant Rights
Landlord-Tenant laws vary by state, but they generally cover areas such as:
- The eviction process – Procedures for carrying out a legal eviction
- Security deposit collections and holdings – Defines the maximum amount a landlord can collect and how the funds must be handled
- Security deposit returns – Procedures and timeline for returning security deposits
- Lease termination – Legal statutes for breaking a lease early
- Rent increases and related fees – How and when rent can be raised and any fees incurred by the tenant
- The Fair Housing Act – Protects potential tenants against discrimination for race, age, national origin, disability, or familial status (federal law)
- The Fair Credit Reporting Act – Determines how a landlord can use credit report information (federal law)
Other Requirements for a Basement Apartment
Although not necessarily laws, there are a few other requirements for a basement apartment you need to be aware of.
Homeowners Association bylaws and CC&Rs can restrict how you use your basement. Rules can vary from only allowing single-family living to disallowing a second kitchen. Be sure to check your HOA rules to determine if you can have a legal basement apartment and what guidelines need to be met.
Violations against HOA rules can lead to fines or placing a lien on your house that could lead to foreclosure.
Talk with your insurance provider to find out if you need a change in coverage or type of insurance. Some policies cover one or two tenants but others may only cover family members.
You may also need landlord insurance should you rent out your basement apartment. Landlord insurance will protect you from liability and property damage from a tenant.
If you plan to rent out your basement apartment, it is a good idea to require renters insurance. Renters insurance will protect the tenants’ personal property in case of disaster.
What Are the Tax Rules for Renting Out a Basement Apartment?
You are required to report any income you receive. However landlords can deduct any expense that comes from rental activity. This means you can deduct expenses from the entire rented basement apartment.
Deductions can include the following:
- Homeowners insurance
- Home improvements
- Utility expenses
- Maintenance and repairs
What Happens If I Have an Illegal Basement Apartment?
Basement apartments that aren’t up to code could cause unsafe living conditions, including death. In fact, illegal basement apartments were the cause of 11 deaths in New York City due to flooding from Hurricane Ida.
Owners of illegal basement apartments can face:
- Fines of up to $1,000 a day
- Construction removal
- Tenant eviction
- Jail time
If you do have unpermitted work, you can get a retroactive permit. You’ll need to complete an application, turn in all floorplans, and pay a fee. An inspector will determine which areas are not up to code. You must then remedy any issues. Once all work complies with safety codes, you will have a permit.
How to Turn a Basement Into an Apartment
Once you have determined that your basement apartment is (or will be) legal, it’s time to get to work. Here is a list of steps for how to turn your basement into an apartment:
- Inspect the Space
- Set a Budget
- Determine Space Layout
- Decide What Upgrades and Renovations are Needed
- Get a Bid
- Kickoff Construction
- Rent Out Your Space