Renting Your Vacation Home and Taxes

If you rent your vacation home, you may be entitled to some tax deductions and there may also be some tax liabilities to be aware of. A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short. And you can also deduct the expenses of renting your property in most cases. Your deduction may be limited if you also use the home as a residence. Here are a few things to be aware of regarding these types of rental properties.

  1. You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss. You may also be subject to paying Net Investment Income Tax on your rental income.
  2. If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs. You’ll report deductible expenses for personal use on your Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  3. If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received.
  4. If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. But keep in mind that if you don’t report the income, you can’t report the expenses.

The above rules all apply when you’re reporting the information on your personal return. Keep in mind that if you use a business entity to handle the rental property the rules are completely different and there may be many more advantages available. If you need more information, see IRS Publication 527 or contact your tax attorney.

By: Evan A. Nielsen (Licensed in California)

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