Badger HomeownerWisconsin home guide

Renting Part of Your Home in Madison

Living in one unit of a duplex, renting out a room, or adding a backyard cottage all make you a landlord in your own home. Madison's zoning, the lender's occupancy rules and state landlord law each have a say. Here's where to look.

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What Zoning Allows

Madison zoning decides how many units a lot can hold. Find your district on the City's zoning map, linked from its Zoning & Signs page.(City of Madison)

BuildingResidential districts (Table 28C-1)
Two-unit (duplex)Permitted in SR-C1, SR-C2, SR-C3, SR-V1, SR-V2, TR-C1 to TR-C4, TR-V1, TR-V2, TR-U1, TR-R and TR-P; conditional in TR-U2
Three-unitPermitted in SR-V1, SR-V2, TR-C4, TR-V1, TR-V2, TR-U1, TR-U2 and TR-P
Four-unitPermitted in SR-V1, SR-V2, TR-V1, TR-V2, TR-U1, TR-U2 and TR-P
Accessory dwelling unitPermitted in all 15 residential districts

From Madison General Ordinance 28.032; "conditional" means it needs Plan Commission approval.(MGO 28.032) A two-unit or three-unit building has a separate entrance to each unit, and every dwelling unit needs its own bathroom and a complete kitchen.(MGO 28.211) Lot sizes vary by district.(MGO 28.035) Mixed-use and commercial districts have their own tables, so ask Zoning (608-266-4551, zoning@cityofmadison.com) about a specific lot.(City of Madison) Outside Madison, each town's zoning differs; see permits by town.

Renting Rooms

  • Each dwelling unit is for one family. That can be a related household plus up to four roomers, or up to five unrelated adults and their dependents living as one household.(MGO 28.211)
  • A house with five or more lodging rooms rented monthly or longer is a lodging house, a separate use that's conditional only in TR-U1 and TR-U2.(MGO 28.211)
  • Rental space minimums: 150 square feet of livable area for the first occupant and 100 for each additional one.(City of Madison)
  • Renting by the night is different: see short-term rental rules.

Adding an ADU

  • An accessory dwelling unit is permitted in every residential district, inside the main building or in a detached one, on a lot with up to eight units.(MGO 28.032)(MGO 28.211)
  • Owner occupancy is no longer required: Madison removed it for all ADUs in 2024.(City of Madison, ORD-24-00022)
  • If you live in the main house, the City says the ADU can't be rented short-term.(City of Madison)
  • Size limits, fees and permits are in the Madison ADU guide, and other towns' rules in the ADU guide.

Owner-Occupant Loans

  • FHA treats two- to four-unit homes as single-family residential property. At least one borrower must move in within 60 days of closing and intend to live there at least a year.(HUD Handbook 4000.1)
  • Rent from the other units can count as income, documented by leases or the appraiser's fair market rent.(HUD Handbook 4000.1)
  • For three or four units, FHA's self-sufficiency test applies: the full payment can't exceed the net rent from all units (including yours), after subtracting the greater of the appraiser's vacancy and maintenance estimate or 25%.(HUD Handbook 4000.1)
  • Conventional (Fannie Mae): rent from the unit you live in doesn't count, but rent from the other units of a 2-4 unit principal residence can. To count it as added income, the borrower needs at least 12 months of property management experience; otherwise it can only offset the payment.(Fannie Mae Selling Guide)
  • Your lender sets the down payment and rate; we don't publish them.

Running the Numbers

The rental cash-flow calculator handles a building you live in: tick "I'll live in one of the units," and it leaves your unit's rent out and fills in your town's property tax and water and sewer rates. The lottery and gaming credit is only for your primary residence, and doesn't cover rental units.(Wisconsin DOR) For the cost of owning a single-family home instead, see the true cost of owning.

You're Still a Landlord

  • State landlord-tenant law applies to the units you rent: disclosures, the check-in sheet, entry notice, repairs and the 21-day deposit return. The landlord rules checklist lists them.
  • One break for small owner-occupied buildings: the rule to name a manager and an agent for legal papers doesn't apply to an owner-occupied building of 4 or fewer units.(ATCP 134.04)
  • In Madison, register the rental's emergency contact with Building Inspection.(City of Madison)
  • Hiring someone to find tenants and run the building? See property managers in Wisconsin for the license they need.

Taxes

  • When you rent part of your property, the IRS has you split shared expenses between the rental part and your part, as if they were two properties, using any reasonable method such as rooms or square footage. Its own example is an owner-occupied duplex.(IRS Pub. 527)
  • Rental-part mortgage interest and property tax go on Schedule E; costs only for the rented part are fully rental expenses, and you depreciate the rented part.(IRS Pub. 527)
  • A deposit you plan to return isn't income; a deposit kept, or used as last month's rent, is.(IRS Pub. 527)

Free Help

  • Tenant Resource Center, a Madison nonprofit with information for tenants and landlords.(Tenant Resource Center) Rental Rights Hotline: 608-257-0006. It also offers housing counseling for both sides and mediation for disputes such as security deposits and lease violations.(City of Madison)
  • Legal Action of Wisconsin: apply for free legal help at (855) 947-2529. Not everyone qualifies. Its housing work covers evictions, housing conditions and security deposits.(Legal Action of Wisconsin)
  • State Bar Lawyer Referral and Information Service: (800) 362-9082. The court doesn't appoint lawyers in eviction cases.(Dane County Circuit Court)
  • DATCP Consumer Protection, the state agency that enforces ATCP 134: (800) 422-7128 or DATCPHotline@wisconsin.gov.(DATCP)
  • City of Madison: Building Inspection takes housing code complaints at 608-266-4551,(City of Madison) and the Department of Civil Rights takes housing discrimination complaints at 608-266-4910.(City of Madison)

Questions

Can I buy a duplex with an FHA loan and rent out the other unit?

FHA insures two- to four-unit homes when at least one borrower moves in within 60 days and plans to live there at least a year. Rent from the other units can count as income. Three- and four-unit homes must also pass a self-sufficiency test against the appraiser's fair market rents.

How many unrelated people can live in a Madison house?

Madison zoning lets a dwelling unit hold one family, which can be up to five unrelated adults and their dependents living as one household, or a related household plus up to four roomers.

Do I have to live on the property to rent out an ADU in Madison?

No. Madison removed its owner-occupancy requirement for ADUs in 2024. Short-term rental of an ADU is more limited: if you live in the main house, the City says the ADU can't be a tourist rooming house.

How do taxes work when I rent part of my home?

The IRS treats the rented part and your part as if they were separate properties: shared costs like mortgage interest and property tax are split by a reasonable method, such as rooms or square footage, and rental-only costs are fully deductible against the rent.