Many Americans have a
second home, some of them in resort or vacation areas. Lately,
renting out a vacation home has become a popular way to generate a
little extra income. But did you know that - depending on your
circumstances - you might not even have to report your rental
income to the IRS?
It's all a matter of time: How much time you - and your renters
- spend there.
Generally speaking, if you rent your vacation home, the income
from that activity must be reported on your federal tax return. But
if you only rent for a short period each year, you may
not have to report it.
Income and deductible expenses from rentals are reported on
Schedule E, Supplemental Income and Loss, whether that rental is a
house, apartment, condo, mobile home, or even a boat. But the IRS
has some ground rules to help you plan just how much you want to
put your vacation home up for rent.
There Are Limits - When you use a
vacation home as your residence AND rent it out to others, you'll
have to divide the expenses between rental use and personal use,
and rental expenses can't exceed rental income. How to figure if
the place qualifies as your residence? If you use the property as a
residence for more than 14 days - or more than 10 percent of the
total days it's rented (whichever is greater) - it qualifies as a
residence in the eyes of the IRS.
For example, say you live in your vacation home for 17 days, and
rent it out for 160 days during the tax year. In that case, the
property is considered a residence, so deductible rental expenses
would be limited to the amount of rental income.
Flying Under the Radar - If you rent
your vacation home for less than 15 days a year, you
can put that money right in your pocket; no need to report any of
the rental income. You can still report expenses such as qualified
mortgage interest and property taxes on Schedule A, Itemized
For more information and helpful tips on rental property and
your income taxes, you can download IRS Publication 527 - Residential Rental
Property (Including Rental of Vacation Homes) from www.irs.gov. Pub
527 includes special rules about personal use of rental property,
and how to report rental income and expenses.
And that could make your summer vacation a lot more