If you have ever considered renting out your vacation home, before you do there are several tax rules you will need to keep in mind to help you stay on the right side of the IRS. Luckily, they aren’t too complex, but they will guide you in determining how you want to use your vacation home.
Number of Rental Day’s Per Year
It is important to understand that the number of days you rent your vacation home has a direct impact on how the IRS views the property. For example, if you rent your vacation home for 14 or fewer days, you will not need to report the income on your taxes.
If, however, you decide to rent your home for more than 14 days, you become a landlord, and all rental income will need to be reported. You can also deduct rental expenses, but keep in mind, the expenses will need to be allocated between when the home is used as a rental property and when the home is used for personal vacations.
Finally, if you use the home more than 10% of the number of days it is rented, or more than 14 days for personal use, it is still considered personal property, but you are allowed to take a deduction for rental expenses up to the amount of rental income received; although, losses cannot be taken as a deduction.
The Definition of Personal Use Days
What becomes most important, besides the number of days you rent the home, is the number of personal use days. Even when a family member is occupying the home, instead of yourself, the IRS considers those days personal use, regardless of whether or not the family member is paying rent. This is also true of days you donate the home to a charity auction.
The advantage to keeping your personal days to 14 days or less or 10% of the rental days is that the home is then considered a business. As such, you can deduct expenses and take up to a $25,000 loss each year you rent the property depending on your income. It’s important to know that the days you spend maintaining the property are not included in personal use days.
Morey and Associates CPA is a Newport Beach CPA Firm with additional expertise in real estate accounting. If you would like help lowering your tax liabilty, call us at 949-759-5626 and ask for Jerry Morey.