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 tax.
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 considered to be 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 received.
- 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 also 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 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 rental price.
- Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
- 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.
For more information contact one of our members.