Vacation Home Rentals and Your Taxes
Can you deduct the costs of renting out your property?
Generally, if you rent a home to others, you are required to report the rental income on your Federal tax return. However, you may not need to report the income if you use the property as your home and you only rent it out for a short period of time.
In many cases, you’re allowed to deduct the costs of renting your property — although your tax deduction can be limited if the property is also used as your home.
Here are some things you should know if you rent out a vacation home:
Definition of a ‘Vacation Home’
A vacation home can be a house, condominium, apartment, mobile home, boat, or other dwelling unit.
Schedule E (Form 1040)
You are typically required to report your rental income and expenses on Form 1040, Schedule E (Supplemental Income and Loss). Note that your rental income may also be subject to the Net Investment Income Tax.
Deductible Rental Expenses
The term ‘rental expenses’ refers to the costs of renting out your property. Certain expenses may be tax-deductible, which will reduce the amount of your rental income that is subject to tax. These expenses may include: mortgage interest, property taxes, insurance, maintenance, utilities, casualty losses, and depreciation.
‘Used as a Home’
Your rental expense deduction is limited if the dwelling is also used as a home (i.e. as your personal residence). In this case, your tax deduction cannot be greater than the amount of rent you received. You are considered to use a property as a personal residence if you use it for personal purposes during the tax year for more than: 14 days, or 10% of the total days it’s rented to others at a fair rental price — whichever is greater.
Personal use may include use by your family, as well as use by any other property owners or their family. The term ‘personal use’ also includes use by anyone who pays less than a fair rental price.
Special rules apply if you use the property for both rental and personal purposes. In this case, you must divide your rental expenses between the rental use and the personal use, based on the number of days the dwelling is used for each purpose.
Schedule A (Form 1040)
Deductible expenses for personal use should be reported on Form 1040, Schedule A (Itemized Deductions).
You are not required to report your rental income if the dwelling is ‘used as a home’ and you rent it out for less than 15 days per year.
If you haven’t yet filed your 2013 income tax return, you can use E-file to complete your taxes online.
For more tax information about renting property, please refer to IRS Publication 527 (Residential Rental Property, Including Rental of Vacation Homes).