Property owners have a leg up when it comes to making extra income when times are tight. A second home or vacation property can double as a rental property that provides an income stream when you and your family don’t need to use it. If you want rent a second home, you should be aware of the tax rules for rental income and whether your second home is considered a full rental property or a second home that you happen to rent out from time to time.
Personal Use of a Rental Unit
When you rent out a second home, you might still use the home yourself at some point during the year. Your use of a second home determines whether it is considered a full rental property or a dwelling that you also put up for rent. The IRS states that if you rent a home for less than 15 days during the year, your property is not considered a rental property and you don't have to report the rental income on your tax return. If you use a second home yourself for 14 days or 10 percent of the number of days you rent the home (whichever is greater), it is considered a rental property, but your tax deductions are limited to the amount of your rental income. If you don't use your second home for personal purposes and you rent it out for more than 15 days, it is a full rental property and your tax deductions are not limited to your rental income.
Rental Tax Deductions
You can deduct various costs related to renting a second home so long as it is considered a rental property. The IRS says that you can deduct the cost of repairs, utilities, advertising, interest, taxes, insurance, maintenance and a host of other expense related to operating a rental property. It is important to keep accurate records of all the rental-related expenses you incur so that you can take as many tax deductions as possible.
If you use a rental unit for personal purposes for part of the year, you don't get to deduct the full amount of expenses paid on the unit. Instead, your tax deductions for the unit are limited to the number days you rented the unit, divided by the total number of days the unit was in use. For example, if you rented a unit for 80 days during the year, and used it yourself for 20 days, its total use is 100 days. In this case, could deduct 80 percent of the unit's expenses, since 80 divided by 100 is 80 percent.
The income you earn when you rent out a home is taxable by the Internal Revenue Service unless you rent it for less than 15 days during the year. According to the IRS, rent, advance rent payments, lease cancellation fees and security deposits that you keep all count as taxable rental income.
- Tax Information for Owning Two Homes
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- Deducting a Second Home
- Can I Deduct Rental Expenses If My Property Is Vacant?
- What Are the Tax Pros & Cons of Declaring Your Second Home as a Rental?
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- The Tax Consequences of Turning Your Main Home Into a Rental
- Do You Need to Claim Income Earned From Renting Out a Room in Your Home in the United States?