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Rochelle S.
  • Denver, CO
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Tax strategy for vacation home vs rental?

Rochelle S.
  • Denver, CO
Posted Nov 2 2016, 08:37

Hello, I've been lurking here a while and this is my first post, I really value everyone's input!  My husband and I are under contract on a condo in a mountain town, something we've dreamed about for a long time.  We aren't totally committed to renting it out yet, and thought we'd dip our toes in by renting to a couple of select family/friends at first.  I would appreciate input regarding the most beneficial tax strategy for the home.  Our AGI will be above 150K.  I am aware that if we use it as a business, we would have to stay in the condo less than 14 days (not counting maintenance) or less than 10% of rented days, and that if we rent out for less than 14 days there is no obligation to report that.  We plan to own the condo for the foreseeable future.  Here are my questions:

1. Is there still any tax benefit to using the condo as a rental business (as opposed to a second home) if our income is above 150K?  We are usually hit with the AMT and that just confuses me to no end despite the time I've spent trying to educate myself.  

2. If we do intend to rent it out, should we put it under our LLC? I don't know exactly how this works but I assume it is something that is most easily done at or soon after closing, rather than waiting a year or so to test the waters - is this true?

3. How does the I R S *know* how many days it was rented for?  Is it simply our responsibility to keep track and then just report a number?  Same question for rent amounts.  I'm anticipating using spreadsheets to keep track of everything but am wondering if I need to keep other documentation, collect signatures, etc.  

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