If your like most people, you have gone on vacation somewhere and fell in love with the area you visited. Depending on your interests, that could be in the mountains of Colorado (or even the Alps) or the beaches of Florida or Fiji. Wherever it is that you like to visit, I am sure that you have become like many people who consider purchasing a vacation house in their favorite place. Of course, if you have the ability to purchase a house like this, it would be a great thing to do. But you do need to be aware of the potential tax consequences.
The IRS recently release tips about having a Vacation Home Rental. Here are the top 5 tips to owning a vacation home rental.
1) The vacation home itself can be a house, apartment, condo, mobile home, house boat or similar property.
2) If the property is used as a home, your rental expense deduction is limited. In general, if you have personal use of greater than 14 days or 10% of the days rented, whichever is greater, than your deductions are limited to real estate taxes and mortgage interest. However, the portion of expenses that are related to the rental (utilities, insurance, management fees, etc.) can be allocated to the rental income, if there are any.
3) If the property is rented for 14 days or less you do not have to report the rental income.
4) The mortgage interest and real estate taxes paid on the vacation rental are deducted on Schedule A of Form 1040.
5) If the property has rental income and is rented for 15 days or more during the calendar year, the rental income and expenses get reported on Schedule E of Form 1040.
It is important that you provide the HUD statement from when you purchased the house to your tax professional. I also suggest you contact your tax advisor if you intend to rent the vacation home out during periods in which you will not be there and determine what documentation you need to provide for the next tax return. Feel free to contact our office at (321) 684-7200.