Do record low mortgage rates have you dreaming of buying a vacation home? Are you also imagining you can cover the cost by renting your villa? Before those dreams turn into nightmares, consider the complex tax rules that apply.
Private Property
If you’re planning to keep your vacation spot to yourself, then mortgage interest and property taxes are generally tax-deductible, just as they are on your primary residence which is great.
Now, say you let your neighbor rent your vacation home for a week. As long as you don’t rent it for more than 14 days a year, the rental income is tax free. You don’t even have to report it to the IRS.
Come One, Come All
If, on the other hand, you rent your vacation home for more than 14 days during the year, you have to include the rental income in your gross income. However, you can deduct rental-related expenses up to the amount of rental income you receive.
If your personal use of the property is limited to 14 days (or 10 percent of the total number of days your house is rented, whichever is greater), you can deduct all your rental expenses, although rental loss deductions are subject to limitations. But be careful: Even if your sister pays you for the three days she spends at your beach house, it counts as personal use.
For more information please call Theresa Stewart at 661-775-9534.