Renting Residential or Vacation Property? Plan Ahead!

July 7, 2017

Plan for tax time when renting out residential or  vacation property

Summertime is a time of year when people rent out their property. In addition to the standard cleanup 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.

Dwelling Unit

This may be a house, an apartment, condominium, mobile home, boat, vacation home or similar property. It’s possible to use more than one dwelling unit as a residence during the year.

Used as a Home

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.

Personal 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.

Divide Expenses

Special rules generally apply to the rental of a home, apartment or other dwelling unit that is used by the taxpayer as a residence during the taxable year. Usually, rental income must be reported in full, and any expenses need to be divided between personal and business purposes. Special deduction limits apply.

How to Report

Use Schedule E to report rental income and rental expenses on Supplemental Income and Loss. Rental income may also be subject to Net Investment Income Tax. Use Schedule A to report deductible expenses for personal use on Itemized Deductions. This includes such costs as mortgage interest, property taxes and casualty losses.

Special Rules

If the dwelling unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible. Find out more about these rules; see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

When in Doubt, Contact Your Accountant or CPA!

The tax treatment for renting out your home or vacation home can be complex. If you have questions or are uncertain about how your decisions will affect your taxable income and resulting tax liability, reach out to your accountant for advice.

Additional IRS Resources:

YouTube Videos:

Renting Your Vacation HomeEnglish | Spanish

 

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