tax breaks — July 08, 2012

Renting Vacation Home Could Pay for YOUR Vacation

by Bob Williams

figuring income from a vaction homeMany 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.

Plan Your Moves

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 Deductions.

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 fun.

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