Do you have a vacation home? Do you rent it out for part of the year, or even for just a week or two? Should you include that on your tax return?? Read on!
The first question — and it’s the most important one — are you a lake person or a beach person? I think if my husband and I ever decide to get a vacation home, that may be the biggest issue we face. He’s a beach person, I’m a lake person. If there’s a good compromise somewhere, let me know in the comment section below!
On to the taxes.
- In general, income that you receive for renting out your vacation home, apartment, condo, mobile home, or boat needs to be included on your tax return on Schedule E.
- If you use your vacation home for your residence as well as renting it out, you need to divide up the expenses between rental use and personal use. For example, if you live at your vacation home for 20% of the year, and you rent it out for 80% of the year, then 80% of the utilities paid throughout the year are deductible on Schedule E as rental expenses. You can’t, however deduct more in expenses than the income that you received.
- How do you know if you are using the home as your “residence”? If your personal use is more than 14 days, or more than 10% of the total days it is rented if that number is greater, then the home is considered to be your residence. For example, if you live in your vacation home for 17 days and rent it for 160 days, then that means that the property is considered your residence (not your primary residence — that’s something different) and your deductible expenses can’t exceed the rental income.
- Now, if you mostly use the home as your residence, and you only rent it out for fewer than 15 days per year, then you do not need to report any of the income. In this case, you’d use Schedule A to report regularly deductible personal expenses, such as mortgage interest and taxes, but no other business deductions.
Take a look at IRS Publication 527 (pdf) for more information — that will help with the taxes, but not the beach/lake thing!