English: Rental cabins near the Great Smoky Mountains National Park in Sevier County, Tennessee. (Photo credit: Wikipedia)
If you have a vacation home that you only use during for brief vacations throughout the year, you might have entertained the thought of renting out the home to defray some of your expenses. Using a property for mixed purposes – that is, partly as personal and partly as a rental (business use) – can lead to some complications with regard to your income taxes.
This is due to the fact that the income earned from renting out the property is likely to be taxable income, which you will need to report on your income tax return. Of course, you’re allowed to deduct the expenses that are related to the production of income, and then you’re only taxed on the net income after the deductions.
The IRS recently published their Summertime Tax Tip 2013-08, which provides some of the guidelines to keep in mind if you’re going to rent out your vacation home. The complete text of the Tip follows:
Renting Your Vacation Home
A vacation home can be a house, apartment, condominium, mobile home, or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.
In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.
Here are some tips from the IRS about this type of rental property.
- You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.You may also be subject to paying Net Investment Income Tax on your rental income.
- If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and personal use. The number of days for each purpose determines how you divide your costs.Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes, and casualty losses.
- If the property is “used as a home”, your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
- If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.
Get Publication 527 for more details on this topic. It is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
