A couple of vacation rental tax tips and one big caveat for those that do
- Owners of vacation homes, or those thinking of renting out their second homes as vacation rentals, must know the tax rules on rental income from second homes.
- One of the best tax code’s freebies allows homeowners who rent out their property for 14 or fewer days a year to pocket the rental income, tax-free. It’s available to anyone renting out a home, and the income doesn’t have to be reported on the owner’s tax return as long as the rental period is 14 or fewer days. The taxpayer can’t take depreciation or maintenance deductions but can deduct mortgage interest and property taxes on Schedule A.
- Things get much more complicated if a home is “mixed use,” meaning the owner uses it himself and rents it out. In that case, he has to count the rental days and determine what percentage they are of the total number of days the property was used. That gives the percentage of expenses such as maintenance, utilities, property taxes, mortgage interest, and depreciation that are deductible from the rental income.
- The caveat, and a very important consideration in vacation renting any home, check the local ordinances to see if it is legal. Many communities and counties ban the overnight renting of homes and most have minimum 30 day rental stays. Here in the Napa Valley, only the city of Napa and St Helena permit vacation rental and this only by going through the regulatory process of obtaining a use permit. Recently here, there have been several stings conducted by local governments and the penalties and fines can be costly. If you advertise on such places as the web, anyone can see it and this is how many violators get caught. If you possible guest can see it, so can those who want to catch those that rent their homes illegally.
For more information about the tax rules of renting out a vacation home, please visit http://on.car.org/Rm8SdY.
Thank you for reading this post. If I can ever be of help in finding you the perfect property here in the Napa Valley, please email me at Curtis@NapaValleyAddress.com