Buying a Property as Vacation and Turning it into Rental
Bronx, NY · Member since 2017 · 10 posts · 2 votes
Hello all,
I am planning on buying a property in Daytona Beach. At the beginning I was planning on buying the property as investment. Later it occurred to me that I can I can buy it as a vacation home, while I go visit this Summer and enjoy my first property, and in six months start renting it out as an investment property. My question is, is this legal? At tax time, how is this property going to be treated, as a vacation home (as I initially bought it) or as an investment property?
Thanks guys! Any link with some good info will be appreciated!
Hi there! Congrats on the move! I am an avid Daytona investor and can shed some light on this. Currently, short-term rentals are prohibited in the residential zones of Daytona, they are only allowed in the T1 Zone (which is on A1A near the hotels-there are only 24 legal short term vacation rentals in Daytona). I own homes in both zones. However, I and several others, are in a lawsuit with the city fighting their ordinance and trying to get short-term rentals allowed in all zones (I mean it's Daytona Beach!), we have a hearing on 2/2 and the Florida legislature is actively debating the issue this session. So that being said, if you plan to Airbnb your home, just hope you have good neighbors-that is the key. When I first purchased in Daytona I did not know short-term rentals were illegal and I purchased two homes-both of which rented like crazy. One of the homes the neighbors are super cool and we never had a problem-the other home had people living behind our home that didn't like the sounds of kids in the pool and they complained to the City (yep, we have a pool so don't judge me other investors out there as I would argue all day long for pools at vacation rentals). We had to stop renting out that house and turn it into a long-term rental. It's a really hot issue in Daytona-if you Google it you will find all kids of articles. Sorry, hate to bring bad news on that-and you can definitely still try it just know you may get shut down or fined.
That being said, Daytona is a great market to invest in-at least in my opinion. The prices are incredible and there is so much going on that I only foresee good things for the area in the near future. Where else can you live a block from the beach for under $200k?
If you have any questions or want to join our efforts to make short term rentals legal in Daytona shoot me a message and we can grab coffee. And good luck in your new home!
As always, its recommended that you consult your cpa for how the home is treated. But based on the number of days I would guess you'd be renting it out versus how many days you'd be using it, I would think you would be treating the home as a rental property.
Here's a snippet of an article I found that might shed a little light on how to maximize the deductions on that type of property. Looks like the key thing is limiting your personal use to being below a certain threshold so that you can treat the home as a rental property. If so, you'll get a ton of deductions.
If you use it more than that threshold, you may lose some of the key deductions but still have to report the rental income (if you rent it out over 14 days). Given that congress may have phased out your ability to deduct more than 10k from property taxes for an individual, there might be a huge difference in costs depending on if you qualify the house as an investment property instead of a second home/vacation home.
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The tax picture gets more complicated when in the same year you make personal use of your vacation home and rent it out for more than 14 days. Remember, rental income is tax-free only if you rent for 14 days or fewer.
The key to maximizing deductions is keeping annual personal use of your vacation home to fewer than 15 days or 10% of the total rental days, whichever is greater. In that case the vacation home can be treated as a rental, meaning you get the same generous deductions. To avoid going over the 10% limit, essentially you shouldn’t use your vacation home more than one day for every 10 days you rent it.
Make personal use of your vacation home for more than 14 days (or more than 10% of the total rental days, if this is greater than 14 days), however, and your deductions may be limited. For example, suppose you rented your vacation home for 180 days last year. You could use the home for up to 18 days of personal use before your deductions would be limited.
Hi there! Congrats on the move! I am an avid Daytona investor and can shed some light on this. Currently, short-term rentals are prohibited in the residential zones of Daytona, they are only allowed in the T1 Zone (which is on A1A near the hotels-there are only 24 legal short term vacation rentals in Daytona). I own homes in both zones. However, I and several others, are in a lawsuit with the city fighting their ordinance and trying to get short-term rentals allowed in all zones (I mean it's Daytona Beach!), we have a hearing on 2/2 and the Florida legislature is actively debating the issue this session. So that being said, if you plan to Airbnb your home, just hope you have good neighbors-that is the key. When I first purchased in Daytona I did not know short-term rentals were illegal and I purchased two homes-both of which rented like crazy. One of the homes the neighbors are super cool and we never had a problem-the other home had people living behind our home that didn't like the sounds of kids in the pool and they complained to the City (yep, we have a pool so don't judge me other investors out there as I would argue all day long for pools at vacation rentals). We had to stop renting out that house and turn it into a long-term rental. It's a really hot issue in Daytona-if you Google it you will find all kids of articles. Sorry, hate to bring bad news on that-and you can definitely still try it just know you may get shut down or fined.
That being said, Daytona is a great market to invest in-at least in my opinion. The prices are incredible and there is so much going on that I only foresee good things for the area in the near future. Where else can you live a block from the beach for under $200k?
If you have any questions or want to join our efforts to make short term rentals legal in Daytona shoot me a message and we can grab coffee. And good luck in your new home!
Hi, I'm actually thinking about investing in Daytona as well. I'm a total newbie and was wondering what areas are nice by the beach? Also, I'm interested in long-term investments and looking for turnkey properties. Any suggestions would be greatly appreciated.
As I interpret your strategy, you are planning to use your new property as a second home for the first six months of ownership, then convert it to a full time rental. This is perfectly legal. At tax time, your accountant/tax preparer will apportion your use of the property between personal use and rental use and allocate all your deductible expenses between Schedule A and Schedule E as appropriate.