Do you have a favorite vacation destination you love so much you ended up buying a second home there? What a great way to not only enjoy your little escape from the world, but also be invested in it. Perhaps you have thought of using the home for rental purposes to help defray some of the costs?
The good news is that you could collect rental income tax free from your vacation home. The catch is, you can only do it 14 days or less out of the year. But if your home is near a large, recurring event such as a golf tournament, music festival or a convention site, this could be an excellent way to receive tax free income.
As long as you rent it out for 14 days or less, the property would also then be considered personal use and the full amount of any mortgage interest can be deducted. If you own more than two homes you are limited to two mortgage interest deductions. Property taxes, however, are deductible for all properties you own that are not used for business.
If you use the vacation home as a rental property for more than 14 days, you must report all rental income on Schedule E of your tax return. The expenses for your vacation property are deductible, but they must be pro-rated based on the number of days the home is used for personal reasons versus rental purposes. The IRS has specific definitions for what constitutes either a personal or rental day, so please consult one of us at Pohlman & Talmage.
Vacation homes are a great way to get away from the hustle and bustle of everyday life, and they can even help pay for themselves with a little bit of planning.
~ Todd Figgins, CPA, EA