Hertsel Shadian, Attorney at Law, LLC

Tax Tips on Renting Your Vacation Home

2 August 2012

For those that own vacation homes, summer is the time to get away to those homes on a long weekend, or even to invite friends and family. Others choose to maximize the value of a second home by finding short-term renters. It is important to remember that income that you receive for the rental of your vacation home generally must be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income. Following are some tips on reporting rental income from a vacation home, such as a house, apartment, condominium, mobile home or boat:

Rental Income and Expenses.  Rental income, as well as certain rental expenses that can be deducted, normally are reported on Schedule E, Supplemental Income and Loss.

Limitation on Vacation Home Rentals.  When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income. You are considered to use the property as a residence if your own personal use during the calendar year 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, then the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

Special Rule for Limited Rental Use.   If you use a vacation home as a residence and rent it for fewer than 15 days in a year, then you do not 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.

For more information about rental income, deductions, and exclusions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information can be found in IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), which is available on the IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses. Please also feel free to share this article with others that might benefit from this information.