Summer is here and most of us are flocking to the beach or hiring rental properties in the beach? Are you one of the lucky owners who is looking for renting your vacation home?
If so, there are a number of tax implications to consider while renting your vacation home. Listed below are some points to keep in mind about taxes and your vacation home.
If your home is rented for 14 days or less, the rental income is tax-free. You are not even required to report it on your tax return. If the home is rented for more than 14 days, the rental expenses can be deducted. You can deduct certain rental expenses such as fees paid to property management firms, insurance premiums, maintenance expenses, mortgage interest, property taxes, utilities and depreciation.
If the vacation home is considered a home (used for personal purposes for over 14 days or 10% of the rented days), your deductible rental expenses cannot exceed your rental income.
If the vacation home is rented out for 15 days or more and used by you for 14 days or less, it is deemed a let-out property and all rental income must then be reported to the IRS. Here, the rental expenses can exceed your rental income. If personal use is greater than 14 days or greater than 10% of the number of days rented out, the property is deemed residential, and the deductible rental expenses would be limited to the amount of rental income.
If the personal use is less than 10% of the days rented, however, then joint filers with $100,000 or less of adjusted gross income can deduct up to $25,000 of losses against their ordinary income.
If the vacation home is exclusively used by you, and not rented out at any time of the year, real estate taxes and interest on home mortgage can be deducted.
As tax laws are complicated, please feel free to consult with our specialists at GKM to gain a comprehensive understanding of tax laws and how best to utilize a vacation home for rental purposes.
