income tax

Tax

Renting Out a Vacation Home

Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.

There is however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.

Known as the “Master’s exemption”, because it is used by homeowners, near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master’s Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.

Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. And, although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest and property taxes on Schedule A.

In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.

Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10% of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

Example: Let’s say you own a house in the mountains and rent it out during ski season, typically between mid-December and mid-April. You and your family also vacation at the house for one week in October and two weeks in August. The rest of the time the house is unused.

The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario 85% of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15% of expenses, only the owner’s mortgage interest and property taxes are deductible on Schedule A.

Questions about vacation home rental income? Give us a call. We’ll help you figure it out.

Tax

Tax Due Dates for August 2013

 

August 12 Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2013. This due date applies only if you deposited the tax for the quarter in full and on time.Employees Who Work for Tips – If you received $20 or more in tips during July, report them to your employer. You can use Form 4070.
August 15 Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July.Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July.

 
Tax

Tax Due Dates for May 2013

May 10 Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2013. This due date applies only if you deposited the tax for the quarter in full and on time.Employees – who work for tips. If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
May 15 Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.
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