Vacation Home Rental

• Posted on July 8, 2008
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Long Island CPA Firm Offering Tax and Financial Advice

There are special tax consequences when you rent out your vacation home for part of the year. The tax treatment depends on how many days it is rented and your level of personal use. Personal use includes vacation use by your relatives (even if you charge them market rate rent) and use by non-relatives if a market rate rent is not charged.

Rented less than 15 days - If you rent the property out for less than 15 days during the year, the property is not treated as a rental. Any rents received are not includable in income no matter how substantial the income might be, and no deductions are allowed other than property taxes and mortgage interest deducted as an itemized deduction subject to the normal limitations. No other operating costs and no depreciation are deductible.

Rented 15 days or more AND the taxpayer’s personal use is less than 15 days or less than 10% of the rental days - Allocate expenses according to personal vs. rental days. No further limitation is necessary (except the usual “not-for-profit” rules must be considered). A loss can be claimed.

Taxpayer use is 15 days or more and over 10% of the rental days - First allocate expenses by personal vs. rental days, as in the previous paragraph. Deduct allocable taxes and interest first, then maintenance and other cash expenses and then depreciation until the net is ZERO. A loss cannot be claimed.

When determining the personal-use days, do not include days where you are there to perform repairs or to fix up the property.

This is a generalized overview of the “vacation home rental rules.” There are other subtle points in the law related to vacation home rentals. Please contact this office before drawing any final conclusions.