Dropdown button for navigation mobile view

Tax Tips about Vacation Home Rentals

Posted by: Zaher Fallahi
Posted On: Aug 30, 2015

If you rent a home to tenants, you usually must report the rental income on your tax return. However, you may not have to report the rent if the rental period is short and you also use the property as your home. In most cases, you can deduct your rental expenses from rental income. When you also use the rental as your home, your rental expense deduction may be limited. Here are some tax tips that you may use if you rent out a vacation home:

Vacation Home. A vacation home may be a house, condo, boat, apartment, mobile home, or similar property.

Schedule E. Generally, rental income is reported and related rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax (NIIT), an additional 3.8% tax applied to some tax payers based on their filing status, adjusted gross, etc.

Used as a Home. If you use the property as your home, your rental expense deduction is limited to the rental income. This means that you cannot deduct expenses in excess of your rental income.

Allocate Expenses. If you use the property personally and rent it to others, special rules apply. You are required to split the expenses between the rental use and the personal use. To figure how to divide your costs, you must use the number of days for each type of use with the total days of use.

Personal Use. Personal use may include use by your family or anyone who pays less than fair market rental value.

Itemized Deductions, 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.

Rented Less than 15 Days. If the property is rented less than 15 days per year and used as a home, you do not have to report the rental income. In this case you deduct your qualified expenses as itemized deductions on schedule A.

Use IRS Free File. If you still need to file your 2014 tax return, you may be able to use IRS Free File to file your taxes. Free File is available until October 15, 2015 for the year 2014 returns. If you make $60,000 or less, you can use brand-name tax software. If you earn more, you can use Free Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website.

Zaher Fallahi, California Tax Attorney, CPA, advises taxpayers, with their IRS audit, IRS Offshore Voluntary Disclosure Program (OVDP), Report of Foreign Bank and Financial Accounts (FBAR), Foreign Account Tax Compliance Act (FATCA), Foreign Trust and Offer-in-Compromise. About 2% of the US lawyers are also CPAs, and we are one of them. Telephones: (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), e-mail taxattorney@zfcpa.com