Do you own a vacation home? Are you planning to rent
it out and make some money? If yes, then wait. Do you know about the tax rules
for renting out a vacation home?
Many vacation home owners select to rent out the
properties in order to generate more income or to balance the investments and
expenses of home ownership. The homeowner may be entitled to certain tax
benefits on the basis of the period a property is rented out. This definitely
helps a homeowner to make his ownership more affordable. Understanding the tax
rules before renting out your home, will help you avoid any tax surprises while
enjoying the advantage of tax breaks.
Do you know that adjusting your personal use of a
vacation home can be beneficial for you? Yes, it will be categorized in a more
advantageous way for tax purposes. Well, it is a good idea to invest in a
vacation home and get returns in the form of rent and tax benefits. However,
there are some rules that you need to understand before renting out your vacation
home. Let us discuss these rules to ease your tasks.
- If you are
planning to rent out a portion or entire vacation home for less than fifteen
days, then it is not essential to report the income. However, expenses associated
with the rental would not be deductible then.
- For renting
out a vacation home for more than 15 days, it is necessary to report the
income. In this case, you may be entitled to deduct all or some of your
rental expenses including depreciation, repairs, insurance and utilities.
Exact deductible depends upon categorization of a rental property for tax
purposes.
- If it is a
rental property, then you can deduct rental expenses like losses
according to the rules of real estate activity. One cannot deduct any
interest, which is attributed to your personal usage of the home;
however, the personal portion of property tax can be taken as an itemized
deduction.
- In case of
a non-rental property, rental expenses can be deducted only to the extent
of rental income. Any excess is carried forward to offset rental earnings
in coming years. An itemized deduction can be considered for the personal
portion of both property taxes and mortgage interest.
·
To maximize deductions, keep the annual personal
use of your vacation home for less than 15 days or 10percent of the total
rental days. Here, you can treat the vacation home as a rental. This means that
you get the same generous deductions. You can avoid exceeding the 10percent
limit by not using your vacation home more than 1 day for each 10 days you rent
it.
·
Use your vacation home personally for over 14
days in this case; however, your deductions may be limited. In case, your
rental income is lower than your rental expenses, then the loss cannot be
counted to offset other sources of income.
A vacation home definitely offers a break from the daily drudge. In addition
to this, you can enjoy a break from taxes. The majority of home owners decrease
the taxable income with tax deductions for vacation homes. As discussed above, the
deductible depends upon numerous factors, particularly if it is rented out and how
often you visit it.In today’s era, a vacation home cannot be limited to a mountain cabin or a beach cottage. Even boats and RVs can count, provided that they feature all essential facilities for bathroom, sleeping and cooking. Tax deduction for vacation homes is a slightly tricky concept and it is better to consult an expert tax adviser.
Many people buy a vacation home just for an investment. If you have bought your vacation home exclusively for personal enjoyment, then generally, you can deduct your real estate taxes and mortgage interest, like your primary residence.
If you are planning to rent out vacation homes, then
it is a wise decision as you can take advantage of certain tax benefits. This
will make a second home more affordable. The tax laws offer various advantages depending
on the period for which the property is rented out every year and the amount of
time the owner uses the home. As tax laws are complex, it may be helpful to
consult with a knowledgeable tax specialist. You will surely have a
comprehensive understanding of the tax laws. Get ready to determine the best
approach to renting out your vacation home now.
© Global Realty & Investment Corp
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