Renting out a second home can help defray the cost of owning and maintaining the property. And there may be valuable tax benefits from the rental arrangement as well. At Richard A. Crow & Associated, we’re Round Rock, TX CPAs that specialize in all things real estate accounting and tax. Here are some things to think about if you are going to rent out a vacation property.
Two Week Rule
Your rental income won’t be taxable as long as you limit the number of rental days to 14 or fewer each year. In this situation, you won’t be able to deduct your rental expenses (other than property taxes and qualifying mortgage interest).
More Than 14 Rental Days
Once you exceed 14 rental days, all rental income becomes taxable to you. But you may deduct various rental expenses. There are different limits on rental deductions depending on your personal use of the home.
All expenses associated with renting out the property, such as utilities and maintenance, are potentially deductible if you limit personal use of the home to no more than the greater of (1) 10% of the total number of days the home is rented or (2) 14 days. However, if there’s a rental loss, the tax law’s passive activity rules may limit your loss deduction.
Where personal use exceeds the 10% or 14-day threshold, your tax deductions for rental expenses generally will be limited to the amount of rental income you collect. No loss is allowed.
To learn more about vacation homes and taxes, give us a call today at 512-255-7110. Our knowledgeable and trained staff is here to help with any of your real estate tax and accounting needs.