Renting Your Vacation Home – Tax Implications

The purpose of owning a vacation home can be for individual use, for investment property, or for both. There are issues that you need to be aware of if you do own a vacation home for any of the above. The IRS is now focusing on monitoring and enforcing laws in the area of investment properties and more detailed information is required.

Following is a brief description of tax implications of owning a vacation home. Always refer questions to your tax and accounting professional regarding these issues to insure that you are reporting income and expenses properly. Hutchins Canning & Company PA has over 30 years of experience assisting clients who own vacation homes and rental properties, and we would be complimented to talk with you.

What applies as a vacation home?

A vacation home can be a house, apartment, condominium, mobile home or boat.

What if I rent my vacation home?

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.

Rental Income and Expenses

In most cases, you can deduct expenses of renting your property. However, your deduction may be limited if you also use the home as a residence.

  • Rental income and deductible rental expenses are usually reported on Schedule E,Supplemental Income and Loss, on your individual tax return
  • You may also be subject to paying Net Investment Income Tax on your rental income.
  • 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 allocate your costs.
  • Deductible expenses for personal use are reported on Schedule A, Itemized Deductions, on your individual return. These may include costs such as mortgage interest, property taxes and casualty losses.
  • 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, You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of 14 days, or 10% of the total days it is rented to others at a fair rental price.
  • 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.

Again, always refer to your tax and accounting professional with questions. Detailed records are required for reporting rental income.