Your Vacation Home’s Tax Benefits
Owning a vacation home packs extra perks besides just a good time. When not in use, vacation homes can add up to major tax savings. The first task is to distinguish between personal use and rental use. Personal use includes a visit by yourself or any family members — even if those relatives are paying money to stay there. Personal use also includes renting the property to a friend at a discounted rate. Rental use is self-explanatory, but also includes any time the property owners spend at the property for the purpose of renovating or improving the property.
Income from property rented for 14 days or fewer within a year is tax-free. Income from property rented 15 days or more within a year is taxable. Calculate 10 percent of the number of days the vacation property was rented out and determine if that number is greater or less than 14. Whichever number is greater should be used to determine how many tax deductions will be granted. For instance, say the property could be categorized as rental use for 40 days of the year. Ten percent of that would be four days, so the number 14 would apply in this case. If the property was rental use for 200 days, ten percent of that — 20 days — would apply because it is a number larger than 14.
Whatever the figure winds up being, the property owner should keep their number of personal use days under that figure if they wish to receive more tax deductions. This is particularly true if the property is technically categorized as rental property, and double bonus if the property owner is actually the property manager. In that case, expense write-offs can tally up to $25,000 in excess of rental income!
For more information, visit the LataRealty blog. And of course, don’t forget that property taxes and mortgage interest on vacation property is tax-deductible, regardless of whether it is ever used for rental purposes. Furthermore, even a boat or RV can be considered a “second home,” provided it has a permanent kitchen, bath and bedroom. Vacation home tax deductions are a relatively complex procedure that will probably require an accountant, but could be well worthwhile in the end.
January 25th, 2008 at 6:49 pm
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