Seven Tax Tips for Vacation Rental Owners
This is the time of year when everyone starts thinking about tax preparation. If you own a vacation home and rent it out, you have likely benefitted from a strong vacation rental market this year. That’s a good thing! But you also want to take advantage of all the tax laws that will help you make the most of your investment.
In addition to the benefits of having a getaway to use at your leisure and the income that can come from renting your property, you have some great tax benefits to consider. We’ll outline a few we’ve regularly come across but note: DO talk to a tax professional as the following information may or may not apply to you.
Tax Tip #1: You may have a getaway, but you can’t get away from Uncle Sam
Be prepared to keep the IRS happy and prove that you use the home you rent out. You’re considered to use a dwelling as a residence if you use it for personal purposes during the tax year for at least:
- 14 days, or
- 10% of the total days you rent it to others at a fair rental price.
Tax Tip #2: You may be able to deduct mortgage interest
Have you set up your vacation rental home as a business? If so, you can most likely deduct the interest you’ve paid on the rental property. You should receive a Form 1098 from your mortgage lender showing you the interest you paid for the year. When you file the tax return, take the deduction on IRS Schedule E, which is for residential rental property owners.
- According to NerdWallet, you may deduct the interest you pay on mortgage debt up to $750,000 ($375,000 if married filing separately) on your primary home and a second home.
Tax Tip #3: You may be able to claim depreciation
Think of your vacation home as a business asset instead of an investment, and you may find you’re able to claim its depreciation on your taxes. This will only be true if the home is worth less each year and is not gaining value. The math is complex, so call in a tax pro if you think you might be able to take advantage of this benefit.
Tax Tip #4: Property tax deduction: for you?
Property tax, which is calculated based on location and valuation, is often overlooked as a tax deduction. There are limits as to what you can claim, however that limit does not apply to business activities. Be sure you speak to a CPA about the best way to take advantage of this option.
Tax Tip #5: Repairs that are deductible
When you rent out your home, things tend to break more often. Generally speaking, you can consider some things tax deductible. For example, the cost of fixing appliances, patching holes in the wall, and even changing light bulbs. Again – check with your CPA for clear delineation of what is deductible for you because sometimes the cost isn’t deductible. Instead, it gets capitalized and could become part of your basis (typically what you paid for the house).
Here are a few big examples of things the IRS says usually have to be capitalized. You can see more in IRS Publication 527.
- Landscaping and sprinkler systems
- Storm windows
- New roofs
- Security systems
- Heating and A/C systems
- Water heaters
Tax Tip #6: Uncovering more expenses
Ask your accountant about whether the following expenses will apply to you:
- Transportation expenses associated with collecting rent, managing your rental or maintaining it.
- Advertising your rental
- Insurance on your rental
In general, you cannot deduct the cost of travel between your home and the rental property. Nor can you deduct any income that is lost if the home is not rented out.
Tax Tip #7: Rental agencies streamline the work
Using a rental management firm offers you so much more than simply getting more eyeballs on your property and managing the entire rental process. It also makes all the financial aspects of the rental side of ownership much easier. For example, we handle utility, cleaning and repair payments, along with any HOA fees (if required).
What Sea Scape can do for you
Sea Scape Properties collects all rental payments and provides our clients with detailed monthly statements. Homeowners will always have instant access to insights on revenue, expenses, and reservations. We collect and submit the occupancy taxes on your behalf and provide a detailed year-end 1099 statement to make filing taxes quick and easy.
That’s our goal: making your rental property as profitable and easy as possible. Let us know how we can help you this year! Contact us today at 910-332-7284 or email to [email protected].