Plan Ahead for Tax Time When Renting Out Residential or Vacation Property
Summertime is a time of year when people rent out their property.
In addition to the standard clean up and maintenance, owners need to be aware of the tax implications of residential and vacation home rentals.
Receiving money for the use of a dwelling also used as a taxpayer’s personal residence generally requires reporting the rental income on a tax return.
It also means certain expenses become deductible to reduce the total amount of rental income that’s subject to tax.
This may be a house, an apartment, condominium, mobile home, boat, vacation home or similar property. It’s possible to use more than one dwelling unit as a residence during the year.
Used as a Home.
The dwelling unit is considered to be used as a residence if the taxpayer uses it for personal purposes during the tax year for more than the greater of: 14 days or 10% of the total days rented to others at a fair rental price. Rental expenses cannot be more than the rent received.
Personal use means use by the owner, owner’s family, friends, other property owners and their families. Personal use includes anyone paying less than a fair rental price.
Special rules generally apply to the rental of a home, apartment or other dwelling unit that is used by the taxpayer as a residence during the taxable year. Usually, rental income must be reported in full, and any expenses need to be divided between personal and business purposes. Special deduction limits apply.
How to Report.
Use Schedule E to report rental income and rental expenses on Supplemental Income and Loss. Rental income may also be subject to Net Investment
Use Schedule A to report deductible expenses for personal use on Itemized
Deductions. This includes such costs as mortgage interest, property taxes and casualty losses.
If the dwelling unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible. Find out more about these rules; see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
Use IRS Free File.
Renting a vacation home can be complicated and IRS Free File can make filing a tax return easier. IRS Free File is available until Oct. 16. Taxpayers earning $64,000 or less can use brand-name tax software.
Those earning more can use Free File Fillable Forms, an electronic version of IRS paper forms.
Free File is available only through the IRS.gov website. You can get forms and publications on IRS.gov/forms at any time.
The IRS will never initiate contact using social media or text message.
First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.View all posts by Michael Sullivan → ← Asher Mellul + Fresh Start Tax LLC + No Longer Associated with Firm. Taxpayers Guide to Identity Theft + Use this Guide For Help + Former IRS →