RENTING A VACATION HOME

Filed in Tax, Savings by on September 12, 2013

Tax rules on renting a vacation home from second homes can be complicated, particularly if you rent the home out for several months, but also use the home yourself.

There is a provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free. This is the “Master’s exemption” for owners near the Augusta National Golf Club in Augusta, GA, who rent out homes during the Master’s Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.

Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. And, although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest and property taxes (Schedule A).

In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.

Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10% of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

For more on this see our September 2013 newsletter link.or contact us.

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