While tax time may seem far away, it is never too early in the year for people who own multiple properties to begin thinking about the complex relationship between vacation homes and taxes. While it is generally true that people who rent out their home to tenants are required to report the rental income to the IRS, there are instances in which homeowners are not required to report the rent they collect. Limits may also be applicable to the amount of rental deductions property owners may report in some instances. The following tax tips may be helpful for people who own a second home or a vacation property that they would like to rent to others.
Use as a Home
A vacation home may be a house, apartment, condominium, motor boat, or mobile home. While homeowners may deduct rental expenses, this deduction may be limited if the property is used as a home. When the property is used as a home, the homeowner’s deduction for rental expenses may not exceed the amount he or she received for rent. Moreover, if the property is used as a home for less than 15 days and is used as a home, the homeowner is not required to report the rental income.
Personal Use
Many taxpayers are unaware that personal use is not limited to use by the primary homeowner and his or her family. Use by other property owners and their family members are also classified by the IRS as personal use. Additionally any person who uses the property and pays less than their share of the fair rent price is also considered to be using the property personally.
Reporting Rental Income and Deductions
Homeowners must generally report their rental income and losses on Schedule E, Supplemental Income and Losses. Rental income may also be subject to Net Investment taxes in some cases. When a home is used for personal use, the homeowner must report rental expenses on Schedule A, Itemized Deductions. Expenses may include property taxes, interest the homeowner pays on the property’s mortgage, and casualty losses.
Individuals who would are looking for assistance regarding taxation issues of vacation homes are encouraged to call Gary M. Kaplan. Mr. Kaplan is a seasoned CPA who is qualified to assist taxpayers in Florida, Maryland, Washington, D.C., New York, and Utah.
