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William Byrnes (Texas A&M) tax & compliance articles

7 Tax Facts for Vacation Home Rentals

Posted by William Byrnes on August 25, 2014

IRS logoIRS Summertime Tax Tip 2014-13 addressed the topic of a taxpayer renting to others, such as summer vacation rentals in San Diego.

The IRS stated that of a taxpayer rents a home to others, then usually the taxpayer must report the rental income on the tax return.  But the taxpayer may not have to report the income if the rental period is less than 15 days and the property is also the taxpayer’s home.

In most cases, a taxpayer can deduct the costs of renting a property.  However, the deduction may be limited if the property is also the taxpayer’s home.

The IRS provided 7 tax facts about renting out a vacation home.

  1. Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  2. Schedule E.  A taxpayer will report rental income and rental expenses on Schedule E, Supplemental Income and Loss.  The rental income may also be subject to Net Investment Income Tax.
  3. Used as a Home.  If the property is “used as a home,” then the rental expense deduction is limited.  This means that the deduction for rental expenses can not be more than the rental income received.  See Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  4. Divide Expenses.  If a taxpayer uses the property and also rents it to others, then special rules apply.  The taxpayer must divide the expenses between the rental use and the personal use.  To figure how to divide the costs, compare the number of days for each type of use with the total days of use.
  5. Personal Use.  Personal use may include use by the taxpayer’s family.  It may also include use by any other property owners or their family.  Use by anyone who pays less than a fair rental price is also personal use.
  6. Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  7. Rented Less than 15 Days.  If the property is “used as a home” and rented out fewer than 15 days per year, then the taxpayer does not have to report the rental income.

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