Summertime is a time of year when people rent out their property. In addition to the standard clean up and maintenance, owners need to be aware of the tax implications of residential and vacation home rentals.
Receiving money for the use of a dwelling also used as a taxpayer’s
personal residence generally requires reporting the rental income on a tax
return. It also means certain expenses
become deductible to reduce the total amount of rental income that’s subject to
Here are some basic tax tips that you should be aware of if
you rent out a vacation or residential home:
- A vacation home or dwelling unit can be a house,
apartment, condominium, mobile home, boat or similar property. It’s possible to use more than one dwelling
unit as a residence during the year.
- If the property is “used as a home,” your rental
expense deduction is limited. The
dwelling unit is used as a residence if the taxpayer uses it for personal
purposes during the tax year for more than the greater of 14 days or 10% of the
total days rented to others at a fair rental price. Rental expenses cannot be more than the rent
- You usually report rental income and rental
expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net
Investment Income Tax.
- If you personally use your property and rent it
to others, special rules apply. You must
divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must
compare the number of days for each type of use with the total days for each
type of use with the total days of use.
Personal use means use by the owner, owner’s family, friends, other
property owners and their families.
Personal use includes anyone paying less than a fair price.
- Report deductible expenses (or personal use on
Schedule A, itemized Deductions. These
may include costs such as mortgage interest and property taxes.
- 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. In this case you deduct your
qualified expenses on Schedule A
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