Rules before you rent a room in Indianapolis

What do you need to handle before you rent a room in your Indianapolis home, or the other side of your duplex? Start with three rules. The city says owners or landlords of residential rental units must register the property. A stay of less than 30 days through a booking platform needs an annual short-term rental permit, with a one-time $150 fee on the first permit. And once you have a regular tenant, Indiana's security deposit law runs on a 45-day clock.

Then plan for the tax return, where the IRS has you split shared house bills between the rented part and the part you live in. Building a new unit is a separate zoning and permit project. Rent can help with the house payment, and it comes with work you keep: shared space, repairs, empty months, and paperwork. Nothing here promises that rent will cover the mortgage.

What matters before anyone moves in

A room in your house and the other side of a duplex are very different to live with. A room can mean a shared kitchen, maybe a shared bathroom, and house rules you both keep. A duplex side gives each of you a door and more privacy, but you are still the one they call when something breaks. Decide which one you would really be comfortable with before you think about rent.

Before a buyer lists a room, these are the calls I'd suggest making first:

1. The Department of Business and Neighborhood Services: does this address need to be on the rental registry?
2. An Indiana attorney: is this a lease or a short-term stay, what belongs in the lease, and how do fair housing rules apply to the listing and to screening?
3. A tax professional: how to split the bills, and which records to keep.
4. The homeowners association, if there is one: what its rules allow.

Register the rental with the city

The city's landlord registry page says owners or landlords of residential rental units within the City of Indianapolis are required to register properties, and properties in excluded cities are exempt. The city's registration fact sheet names them: Beech Grove, Lawrence, Southport, and Speedway. It lists a $5 registration fee, and one owner can register several properties together for that one fee. State law caps an annual registration fee at $5 (IC 36-1-20-5).

Neither page has a separate line for an owner who lives in the home and rents a room, or who lives on one side of a duplex and rents the other. Ask the Department of Business and Neighborhood Services. The city page lists it at 200 E Washington St, phone 317.327.8700, 9 a.m. to 4 p.m., Monday through Friday. Registration puts your name on file. It does not write the lease or fix the furnace.

A nightly rental needs its own permit

A stay under 30 days through a booking platform is a short-term rental under IC 36-1-24-6. That covers a single-family home, a unit in that home, a unit in a two-family or multifamily building, and a condo, co-op, or time-share unit, plus a detached guest house.

The city page says the City-County Council created the Short-Term Rental Permit Program in August 2024, effective January 1, 2025. You apply for an annual permit for each short-term rental unit. The initial permit is a one-time $150 fee, renewals have no fee, and the unit has to be a legally built dwelling that meets building code. Chapter 852 of the city code adds that a permit expires one year after it is issued, an inspection may be required, and RVs, travel trailers, and shipping containers are not allowed.

Ask how many permits your address needs. IC 36-1-24-11 says a city may require only one permit per single-family home or two-family dwelling, covering every unit offered this way, while the city page says a permit for each unit. State law also caps the fee at $150 and bars a renewal fee. Renting without a valid permit is a Class C infraction, and each stay counts as its own violation. Homeowners association and condo rules stay in force either way.

The deposit clock, once you have a tenant

A room lease, or a lease of the other side of your duplex, is not a hotel night. Indiana's residential landlord-tenant statutes, including the security deposit chapter, apply to rental agreements for dwelling units. They do not apply to transient occupancy in a hotel, motel, or other lodging, unless the setup was built to avoid the statutes (IC 32-31-2.9). The deposit chapter, IC 32-31-3, counts part of a structure used as a sleeping unit, including a rooming house, as a rental unit. Any waiver of the chapter is void.

Section 12 says you return the deposit minus accrued rent, damages from the tenant breaking the law or the agreement, and unpaid utility or sewer charges owed under the agreement. The written, itemized notice is due not more than 45 days after the agreement ends and the tenant delivers possession. You are not liable under the chapter until the tenant gives you a mailing address in writing. Section 14 says that within 45 days after occupancy ends, you mail an itemized list of damages, with an estimated repair cost for each, and a check or money order for the difference.

Section 13 lets the deposit cover actual damage beyond ordinary wear and tear, unpaid rent, and certain utility or sewer bills, plus a last rent payment only if a written agreement says so. Skip the damage notice and section 15 treats that as an agreement that no damages are due, so the full deposit goes back immediately. Section 18 has you name, in writing, an Indiana resident who manages the unit and one who can accept legal papers. One person can do both.

Adding a unit is a building project

Renting space you already have is different from building a new dwelling. Indianapolis calls that extra dwelling a secondary dwelling unit. Section 743-306 of the zoning code limits it to one per lot with a single-family detached house. You must live in the main unit or the secondary unit as your permanent home. The cap is 720 square feet, with one extra off-street parking space and a separate entrance.

You still need permits. Residential (Class 2) applications start on the city's residential permit page. Ask whether your zoning district allows the unit, and ask before adding one to a duplex, since the standard is written for a single-family detached house. If an extra unit turns a two-unit building into three, FHA's rules change too, as the FHA guide for 2-4 unit homes explains.

Split the house bills on your tax return

IRS Publication 527 (2025) says that when you rent part of your home, you must divide certain expenses between the rental part and the personal part, as though they were two properties. The rental share of mortgage interest and real estate taxes can go on Schedule E. The 2025 Schedule E instructions put it in one line: if you rent out only part of your home, deduct the part of the expenses that applies to the rented part.

A cost that belongs only to the rented room, such as painting that room, is all a rental expense. A shared bill, such as heat for the whole house, is divided by any reasonable method. The two most common are the number of rooms and the square footage. There is also a short-stay rule: if you use a dwelling as a home and rent it less than 15 days during the year, you are not required to report that rental income and those expenses.

Hypothetical example, using Publication 527's own figures: a 12 by 15 foot room is 180 square feet in an 1,800 square foot house, or 10%. A $600 heating bill for the whole house makes $60 a rental expense, and the other $540 is personal. Your bills will differ.

Property tax is a separate question. Renting part of the house also changes how Marion County applies the homestead deduction, which the Marion County homestead guide covers.

The tradeoffs, and what to skip

The case for renting a room or a duplex side is simple: rent may help with the payment, and space you already own needs no construction. The case against is daily life. You give up some privacy, you become the landlord, and the deposit and permit rules carry penalties if you skip steps.

Skip these:

• Listing a room by the night before you ask how many permits your address needs.
• A generic lease template nobody has checked against Indiana law.
• Building a secondary unit before you confirm your zoning district allows it.

A manageable next step

If you are still deciding whether sharing a house fits, the house-hacking quiz walks through the tradeoffs before you advertise anything. If you are still choosing where to buy, Find Your Place in Indy suggests neighborhoods based on your priorities. For the bigger picture on renting part of your home, Roots Realty has a guide to house hacking in Indianapolis.

To talk through a specific Indianapolis house before you rent part of it, talk with me. I'm Kyle Hoffman, an Indianapolis native and a REALTOR with Roots Realty Co., licensed in Indiana. You can read my story first.

Sources

• Indy.gov landlord and short-term rental registries: who registers, the permit program, the $150 fee, the city contact.
• Landlord registration fact sheet: excluded cities and the $5 fee.
• IC 36-1-20: the $5 cap on registration fees.
• IC 36-1-24: the short-term rental definition, one permit per dwelling, the fee cap, penalties, HOA rules.
• Indianapolis Code Chapter 852: permit term, inspection, banned structures.
• IC 32-31-2.9 and IC 32-31-3: who the landlord-tenant and deposit laws cover, and the 45-day deposit rules.
• Indianapolis zoning Section 743-306: secondary dwelling unit standards.
• IRS Publication 527 (2025) and Schedule E instructions: splitting expenses, the room example, the 15-day rule.

Last reviewed September 2026.

This is general information, not legal, tax or lending advice. Confirm your address with the city, your lease with an Indiana attorney, and your return with a tax professional.