If you plan on making some extra cash by renting your vacation home this year, you’ll need to familiarize yourself with a few tax rules. The Internal Revenue Service has some handy tips for those inviting renters to stay at their home away from home:
- Not all vacation rental income must be reported. Generally, income received from the rental of your vacation home must be reported on your federal income tax return. However, if you rent the property for only a short time each year, you might not be required to report the rental income. Under the special rule for limited use, if you use a vacation home as a residence and rent it for fewer
than 15 days per year, you don’t have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal
expenses, such as qualified mortgage interest, property taxes, and casualty
losses. - Know where to report rental income and expenses. Rental income, in addition to certain rental expenses that can be deducted, are usually reported on Schedule E, Supplemental Income and Loss.
- There are limitations on vacation home rentals. When you use a vacation home as your residence and also rent it to others, you’re required to divide the expenses in half. Expenses must be separated according to rental use and personal use, and you cannot deduct the rental portion of the expenses in excess of the rental income.
- Know what qualifies as residential use. Property qualifies as residential use if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
- Know what does and doesn’t qualify as a dwelling. According to the IRS, a dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. It has the basic living accommodations, such as a sleeping space, toilet, and facilities for cooking. A dwelling does not include property used only as a hotel, motel, inn, or a similar establishment.
For more information, see IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), at IRS.gov or call 800-TAX-FORM (800-829-3676). IRS Publication 527 offers detailed information about rental property, including special rules about personal use and how to report rental income and expenses.