The tax rules of renting your home for the summer

 

Many Americans with a second home enjoy the flexibility they have traveling between the two properties and spending certain seasons in their favorite locations. During off-seasons, however, homeowners must make the decision of whether to lock down their second property until next year, rent it out during parts of the year or rent it out for a very short period of time. The option that individuals choose may carry significant tax implications, so it's important that they weigh their choices carefully. 

Owners who rent their homes may be required to pay taxes on any income they earn. However, as a landlord, they might also be entitled to claim several deductions, which could greatly lower their taxable income. Individuals who rent a second home to others but still use it as a personal residence may be limited in the deductions they can obtain. According to the IRS, a home is considered a personal residence if owners use it for personal purposes for more than the greater of 14 days or 10 percent of the time that it's rented. However, if the home is rented out for most of the year, it may be considered a residential rental property. 

Claiming deductions on rental properties
Taxpayers who rent out their second homes for most of the year may be permitted to claim deductions relating to the maintenance of the property. These write-offs include cleaning, insurance, depreciation, utilities, management fees, repairs, commissions and interest, among others. 

There is also a special rule that homeowners should be aware of if they plan to rent their homes for a short period of time. Under current tax rules, owners may rent their homes for 14 or fewer days without being required to pay taxes on the rental income. However, as soon as the home is rented for 15 days, the rules kick in. Individuals who may want to earn a little additional money by renting their home for a short period without being forced to fill out rental income paperwork should understand the specifics of and abide by this rule. Keep in mind, however, that local and state taxes may still apply, regardless of the length of time the home was rented. 

For individuals who are new at renting their second properties and unaware of the deductions for which they may qualify, speaking with a tax preparer can help clear up any legal and tax issues that may arise during filing season.

For a more in-depth look at Liberty Tax Services, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

Posted To: Tax Ranger's Blog By: Tax Ranger On: Tuesday, May 28, 2013
blog comments powered by Disqus