If you have a vacation home in Summit County, or anywhere in the US, that you rent out part time, what you can or cannot deduct can get a little sticky. How many days a year do you use your vacation home? How many days to you rent it to others at fair market rent? Are all of your expenses deductible? If not, which ones can be deducted? The tax rules can certainly be confusing if you have vacation home rentals.
Is my vacation home a rental property?
According to the IRS, if you rent your home fewer than 15 days a year, that is not a rental property and the income does not need to be claimed and neither do the expenses. On the flipside, if you use a home for personal reasons for the greater of more than 14 days a year or 10% of the days you rent it to others, there will likely be limitations to what you can deduct in rental expenses. Here’s the IRS position. Of course, every situation is a little different so talk with your tax professional. This is not tax advice.
Vacation home rentals and exchanges
A 1031 Exchange is a process to defer taxes from the sale of one property if you roll the proceeds into one or more other properties. There are strict requirements to successfully do this. The Biden administration is looking at changing eligibility for an exchange. However, current rules do not allow you to exchange your vacation home if you use it more than 14 days a year and do not rent it. If you are considering an exchange, you should think about renting your vacation home more and using it less for at least two years prior to its sale.
Loans on vacation homes
The way you file your taxes on your vacation home can impact another vacation home you buy in the area. If you have a vacation home, lenders will not allow a loan for another vacation home in the area. A loan on a home a short distance from another you own would be classified as an investment property if it is not your primary residence. That classification can impact your lender’s ability to do the loan and the interest rate you qualify for. Even if you view it as an investment property, if you use it too much and file your taxes with more than 14 days of use, your lender may not agree and that may be reflected in your new mortgage.
Talk to your tax professional
There are an unlimited number of scenarios people can have with their vacation home, especially when rentals are involved. While some education is important in order to know what questions to ask, there is no substitute for information for your situation from a tax professional. As real estate agents, we can help you know what questions to ask and what you need to be aware of in order for you to figure out the best plan of attack for you. We cannot give you tax or financial advice and this information should not be viewed as such.