When you’re enjoying your summer vacation, the last thing you want to think about is taxes. What most people aren’t aware of is the tax implications that comes with renting your residence or vacation home. If you receive money for the use of one of your personal residences, that generally requires reporting that income on your tax return. It also means certain expenses for that home can be used as deductions.
A dwelling unit is considered a house, an apartment, condominium, your mobile home, boat, or vacation home. It is possible to use more than one dwelling unit as a residence during the year. The dwelling unit is considered to be used as a residence if the taxpayer uses it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days rented to others at a fair rental price. Personal use means use by the owner, owner’s family, friends, other property owners and their families. Personal use also includes anyone paying less than a fair rental price.
There are specific rules that apply to the rental of a home or dwelling. In most cases, your rental income must be reported in full and any expenses need to be divided between personal and business purposes. When dealing with deductions, your rental expenses cannot be more than the rent you receive for that property. There are special deduction limits. If the dwelling unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible.
You can report your rental income and rental expenses on a Schedule E Supplemental Income and Loss. Rental income can be subject to Net Investment Income tax. You can report any deductible expenses for personal use on a Schedule A on Itemized Deductions. This includes costs like your mortgage interest, property tax, and casualty losses.