[Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.]
Everyone’s favorite time of year is upon us—tax time. Filing your taxes can become even more complicated when you add a vacation home or short-term rental to the mix.
If you are not using a professional property manager that handles vacation rental taxes on your behalf, there are a few key things you’ll want to consider when filing your vacation rental taxes.
Key Considerations When Filing Vacation Rental Taxes
1. Choose the correct form.
First, you’ll want to make sure that you are using the right form, which is typically going to be an IRS Schedule E or C. Which form you choose is based upon whether you are renting out your property as supplemental income (IRS Schedule E) or if you manage the property as your primary business activity (IRS Schedule C). For either form, you’ll need to have a list of documented expenses, all 1099s filed reporting contractor payments, property usage schedule, and gross rental income.
2. Track how the property is used.
Second, the amount you use your property will have an impact on how much you are able to write off.
In simplest terms, the 14-day rental rule means you don’t pay taxes on the income you receive from your short-term rental if BOTH of the following are true:
- You rent out the property for less than 14 days
- You use the property yourself for 14 days or more
However, if you rent the property out for more than 14 days and use it yourself for less than 14 days, taxes can become a bit more complex.
The IRS will want to see a log of each day the property was in use, so it’s important to carefully document vacation rental days, personal use days, and days used for repairs and maintenance (which cannot be combined with days friends and family are using the home).
If you rent your property for more than 14 days, you may be able to write off a good portion of your expenses. In this case, vacation home tax deductions vary by state, so make sure you are familiar with the rules and keep detailed records. It’s required by law that you keep receipts for each expense you deduct, so create a system for tracking and filing your expenses so you aren’t scrambling to locate receipts.
3. Document rehab and repair expenses.
Last, while you are able to write off repairs to your vacation home (think fixing a leaky toilet or broken window) improvements are handled much differently. Instead of being written off in the year of the expense, they are deducted over the use of their lifetime. But don’t shy away from getting improvements down on paper—they are indeed tax free income.
In addition, it’s worth mentioning that having a property management company caring for your vacation home has a multitude of benefits. A full-service vacation rental property manager won’t just clean and maintain your property, they’ll also handle the paperwork and logistics for the state sales and hotel taxes and give you the information you need for state income taxes on your rental.
If you choose instead to self-manage, keep the above tips in mind when filing taxes.
[Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation.
The information provided here is for your use and convenience only. We have taken reasonable precautions in the preparation of this material and believe that the information presented is accurate as of the date it was written. However, we will assume no responsibility for any errors or omissions. We specifically disclaim any liability resulting from the use or application of the information contained in this publication.]
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