If you own a vacation home, you’ve probably considered renting it out occasionally to help offset some of the costs.
As it turns out, Uncle Sam has also considered this possibility and is poised to receive a portion of that income based on the number of days each year the property is rented out.
First of all, pay attention to the 14-day rule, says Thomas A. Gorczynski, a registered agent in Phoenix.
Proceeds from a vacation home rented 14 days or less per year are not taxable and do not need to be reported on your tax return, regardless of the rent you charge.
To be eligible, the property must be your personal residence. A dwelling is considered a personal residence if the owner’s use of the house exceeds the greater of 14 days or 10% of the days the house is rented to others at fair market value each year.
While you can’t deduct rental charges, you may be able to deduct some or all of your mortgage interest and property taxes on Schedule A of your 1040.
The IRS definition of personal use is broad, helping you meet the 14-day rule. It includes the days when you or a member of your family are using the house. Also counted are the days you let someone else use the home for less than a fair rental.
If you rent the vacation property at fair market value for more than 14 days per year, the IRS considers you to be an owner.