Thursday, June 7, 2012

Vacation Homes: A look at the tax rules

If you own a home that is available for both personal and rental use, you have what is commonly known as a vacation home. Vacation homes are a hybrid: they are not purely rental properties, nor are they purely personal use properties. Since they are special, they have their own very specialized tax issues.

A vacation “home” could be a house, condo, motor home, boat, or similar property. In order to qualify, it must have a sleeping place, toilet, and cooking facilities.

If the home is rented for less than 15 days, you are not required to report the income. However, if you rent the home for 15 days or more, and you or family members use the home for personal use for even one day, you have to allocate rental expenses.

The amount of personal use determines the classification of your home for tax purposes. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out.

If you limit your personal use to not more than 14 days or 10% of the time the home is rented, all rental expenses are deductible.

If you use the property for more than 14 days or 10% of the number of days it’s rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.

The rules are complex, but a basic understanding of the rules and good recordkeeping will help you get the best tax breaks from your vacation home.

Give us a call at (219) 769-3616 if you would like more
information or e-mail your questions to tlynch@swartzretson.
com.
SWARTZ, RETSON & CO., P.C.

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