In recent years, finding a rental home has become a common part of travel and vacation planning. Have you thought about the tax consequences of renting out your vacation home for part of the year?

The tax treatment depends on how many days it’s rented and your level of personal use. Personal use includes vacation use by your relatives (even if you charge them market rate rent) and use by nonrelatives if a market rate rent is not charged.

If you rent the property out for less than 15 days during the year, it's not treated as “rental property” at all. In the right circumstances, this can produce significant tax benefits. Any rent you receive isn’t included in your income for tax purposes (no matter how substantial the amount). On the other hand, you can only deduct property taxes and mortgage interest—no other operating costs and no depreciation. (Mortgage interest is deductible on your principal residence and one other home, subject to certain limits.) If you rent the property out for more than 14 days, you must include the rent you receive in income. However, you can deduct part of your operating expenses and depreciation, subject to IRS rules.

Please give us a call if you want to explore the tax implications of renting out your vacation home.