The Herald Net has a short article on the main tax rules with regard to vacation rentals. Let me break down the categories of taxation:
- Renting out your vacation home less than 15 days a year
- Renting out your vacation home as much as possible while never using your vacation rental for personal use.
- Renting the home more than 15 days a year and staying in it less than 15 days a year
- Renting the vacation home more than 15 days a year but also staying in the unit more than 15 days a year.
Keep in mind, the days you are staying at your home but doing some material work (like repainting, restocking, cleaning, etc) are not considered personal leisure days.
One premise in the article that I do not agree with is that you certainly can expect to make money on your vacation rental. Let me clarify: I agree that not every rental makes money, but with some shrewd decisions on marketing and managing (such as advertising your vacation rental by owner rather than through a property management company), you can certainly turn a profit.
Of course, talk to your accountant about this stuff – don’t get your tax advice from a blog on the Internet!
Thanks for sharing. With prices of condo’s and houses in resort areas and places where you are likely to do well renting the properties, I think “Making Money” on a rental property is relative. Unfortunately, I (probably like most Americans) did not have the cash to buy a 2nd home outright and was forced to take on a substantial mortgage. While my rental does not generate positive cash flow, I feel I’m still making money. Why? I only consider the interest portion of my mortgage payment since the capital is not an expense the remainder is an investment. With the interest on my mortgage, condo fees, and other expense I am able to recover all the operating expenses and approximately half the interest portion of my mortgage. Considering I bought something that over the 5 years I’ve owned it has appreciated about 20% (well down from what it was but its positive and doing much better than my investment portfolio) The difference between break even and what I’m “losing” on my property has not come close to what I’ve made despite the real estate downturn. So I’m think I’m making money!
Now from the IRS’s point of view, I’m losing a substantal amount, especially if I cont depreciation, milage for my trips to “check up on my unit” and such so I’ve been deferring quite a bit of loss. So when I finally do start generating income on my propery, I won’t have to pay any taxes on it for a while and I’ll get much of what I “lost” back in tax savings.
All in all not a bad deal, and I get a nice place to go when I want to escape as long as I stay there less than 10% of the days I rent, which is not hard with 4 kids in school and all the family commitments that entails. Not bad at all…
Andy