Renting Out a
rules on rental income from second homes can be complicated,
particularly if you rent the home out for several months of
the year, but also use the home yourself.
There is however, one provision that is not complicated.
Homeowners who rent out their property for 14 or fewer days
a year can pocket the rental income, tax-free.
Known as the "Master's exemption", because it is used by
homeowners, near the Augusta National Golf Club in Augusta, GA
who rent out their homes during the Master's Tournament (for
as much as $20,000!). It is also used by homeowners who rent
out their homes for movie productions or those whose
residences are located near Super Bowl sites or national
Tip: If you live close to a vacation destination
such as the beach or mountains, you may be able to make
some extra cash by renting out your home (principal
residence) when you go on vacation--as long as it's two
weeks or less. And, although you can't take depreciation
or deduct for maintenance, you can deduct mortgage
interest and property taxes on Schedule A.
In general, income from rental of a vacation home for 15 days
or longer must be reported on your tax return on Schedule E,
Supplemental Income and Loss.
You should also keep in mind that the definition of a
"vacation home" is not limited to a house.
Apartments, condominiums, mobile homes, and boats are also
considered vacation homes in the eyes of the IRS.
Further, the IRS states that a vacation home is considered a
residence if personal use exceeds 14 days or more than 10% of
the total days it is rented to others (if that figure is
When you use a vacation home as
your residence and also rent it to others, you must divide
the expenses between rental use and personal use, and you
may not deduct the rental portion of the expenses in excess of
the rental income.
Example: Let's say you
own a house in the mountains and rent it out during ski
season, typically between mid-December and mid-April.
You and your family also vacation at the house for one
week in October and two weeks in August. The rest of the
time the house is unused.
The family uses the house for 21 days and it is rented out to
others for 121 days for a total of 142 days of use during the
year. In this scenario 85% of expenses such as mortgage
interest, property taxes, maintenance, utilities, and
depreciation can be written off against the rental income on
As for the remaining 15% of
expenses, only the owner's mortgage interest and property
taxes are deductible on Schedule A.
Questions about vacation home rental income? Give us a
call at 301-657-8080. We'll help you figure it out.
Financial Services at Sullivan & Company, CPAs
Grow leads our Financial Services Division and is here to
help you navigate your financial future. As an Investment
Advisor Representative, she is able to provide an
independent opinion on the investments you already own or
are considering buying.
We can structure a portfolio
based on your risk tolerance or we can help you decide how
to invest in your company 401(k) plan. We work with each
client to identify their concerns and to provide solutions
according to their situation.
is also experienced in company retirement plans. If you own
a business that does not have a plan; we can discuss your
options and set up a plan that fits your company.
If your business already has a
plan; we offer a free evaluation of the plan to ensure that
it is up to date and working well for you and your
Our goal is to provide personal, unbiased and independent
advice to help you make well-informed decisions about your
financial life and investments.
Contact Kathy Grow or Jordana Para to set up a free initial
consultation (301) 657-8080.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please give
us a call at
(240) 316-3564. We
can help guide you in the right direction.
Remember you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at
Regards, Paul Sullivan, CPA
President, Sullivan & Company