You can legally rent out a basement apartment if you’re in compliance with 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
- Permits
- Certificate of Occupancy
- Warranty of Habitability
- Landlord Tenant Rights
Building Requirements
Basement apartments must meet the standards of state and local building codes. Requirements differ by state but fall into these ranges:
| Area | Minimum Requirements |
| Full apartment |
|
| Entrance/exit |
|
| Bedroom |
|
| Kitchen: |
|
| Full bathroom (shower, sink, and toilet) |
|
| Full bathroom (bath, sink, and toilet) |
|
| Half bathroom (sink and toilet) |
|
| Ceiling height |
|
| Windows |
|
| Egress windows |
|
| Walls |
|
| Utilities |
|
State and Local Zoning Laws
State and local governments establish zoning laws that determine what types of properties can exist in each area.
Talk to a landlord-tenant lawyer in your area to determine whether you’re legally allowed to turn your basement into an apartment and whether there are specific requirements you must comply with.
In Chicago, your property must be at least 20 years old to convert your basement.
Permits
Most areas require homeowners to get a permit before a major renovation to ensure your plans meet zoning and code requirements. If your plans don’t meet the requirements, you can 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 can’t be included in the square footage when listing your home. 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 change the 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. Generally, you must fill out a form, pay a fee, and have an inspection.
Inspections may include:
- Plumbing
- Doors and windows
- Electrical
- Fire safety
Warranty of Habitability
Landlords in nearly every state are required to keep apartments safe and livable. Specific requirements vary but generally include:
- Electricity
- Functioning gas and plumbing
- Smoke alarms
- Heat
- Free of pests, trash, and rodents
- Weatherproof
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 – The maximum amount a landlord can collect and how the funds must be handled
- Security deposit returns – Procedures for returning security deposits
- Rent increases and related fees – How and when rent can be raised and any fees incurred by the tenant
- Lease termination – Legal statutes for breaking a lease early
- The Fair Credit Reporting Act – Rules for how a landlord can use credit report information (federal law)
- The Fair Housing Act – Protects tenants against discrimination for race, age, national origin, disability, or familial status (federal law)
Other Requirements for a Basement Apartment
Although not necessarily law, you need to be aware of a few other requirements for a basement apartment.
HOA Rules
Homeowners Association bylaws and CC&Rs can restrict how you use your basement. It’s possible that your HOA won’t allow a second family in the property, which disallows you from renting out a basement.
Violations against HOA rules can lead to fines or a lien on your house that could lead to foreclosure.
Insurance
Talk with your insurance provider to determine if you need to change coverage or the type of insurance you have. Some policies cover one or two tenants, but others may only cover family members.
You may also need landlord insurance to protect you from liability and property damage from a tenant.
If you plan to rent out your basement apartment, requiring renters insurance is a good idea. 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:
- Utility expenses
- Homeowners insurance
- Maintenance and repairs
- Home improvements
What Happens If I Have an Illegal Basement Apartment?
Basement apartments that aren’t up to code could cause unsafe living conditions. 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
- Jail time
- Construction removal
- Tenant eviction
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’ll get 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
