Tax Implications on Your Vacation Rental

If you are operating a vacation rental home it is important that you are also aware of the tax implications. The calculation of tax liability is not very straightforward and there are some ifs and buts which will have an impact on your tax liability. Your tax liability will change depending upon how you put your vacation rental home to use.

rental house

It is quite common to see vacation rental home owners using the property for their own recreation and renting it out while it is not in use.

Discussed below are tax implications in three different ways you put your vacation rental to use. Being aware of the tax laws will help you use your rental home judiciously.

1. Vacation Rental Property is put to Commercial Use for Most of the Year

If the duration for which you have used your second home for personal use is either less than 14 days or less than 10 percent of the days you rent it out during the year, you will have to file an income tax return as you would do normally for an investment. The rental income that you earn will be subject to taxes and you can claim for the expenses you incur on your rental home as deductions from your income. The normal expenses allowed for deduction are advertising, maintenance, legal, depreciation, mortgage interest, repairs and transportation costs. If these expenses exceed your income, you will be allowed to carry forward the loss and claim for a set off against future profits.

2. Vacation Home is primarily being used for Personal Recreation

If your vacation rental property is rented out for commercial use for less than 14 days, then whatever you have earned as rental income from those 14 days is tax free. This stand true not only for your second home but also for your primary residence. So if you have rented out your primary residence for less than 14 days, then whatever rental income you would have earned need not be reported in your tax returns.

3. Vacation Rental Home is being used for both Personal and Commercial Purpose

If you use your vacation home for personal use for either more than 14 days or more than 10 per cent of the days you have rented it out for commercial use then you essentially cannot claim all the expenses incurred on your vacation home as deduction. If you have stayed in your rental home for 30 per cent of the total number of days you put it for either commercial or personal use, then you would be allowed to claim a deduction for only 70 percent of the expenses you incurred on your vacation home.

It is Best to seek Advice of an Expert

Tax laws are always complicate and if you are looking to plan your taxes on your vacation rental home, it is best to get guidance from an expert in the subject.

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  • Speaking of Taxes, be sure and pay your local sales taxes as well…very important!

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