Owning a vacation rental home can offer impactful revenue-protecting tax benefits depending on how you use and rent the property. The largest of these benefits stems from the IRS's generous depreciation of the property, an annual deduction that reduces your taxable income from renting the property.
This article delves into the intricacies of tax planning for vacation rentals. From leveraging IRS depreciation rules to optimizing deductions, we’ll equip you with the knowledge you need to navigate this financial landscape.
Here are some general guidelines to consider:
If you rent the property for 14 days or less per year, you can keep the rental income tax-free and deduct the same expenses as your primary residence, such as property taxes and mortgage interest.
You must report the rental income on your tax return if you rent the property for more than 14 days per year. However, you can also deduct rental expenses, such as maintenance, repairs, insurance, and depreciation. You must allocate the costs between personal and rental use based on the days the property is used for each purpose.
If you use the property as a personal residence and rent it out for more than 14 days per year, you can deduct the rental expenses up to the amount of rental income, but not more. You must also divide the expenses between personal and rental use as above.
If you use the property as a rental only and do not use it for personal purposes, you can deduct all the rental expenses and losses against your other income, subject to the passive activity loss rules. You do not need to allocate the costs between personal and rental use.
These are some basic tax rules for vacation rental properties, but other factors and exceptions may apply to your situation. Therefore, it is advisable to consult a tax professional before buying or renting a vacation home. You can also use tax software like TurboTax to help you prepare your tax return and optimize your deductions.
Contact Brandon Balsley at (480) 933-8874 or email Brandon.Balsley@grandwelcome.com for more information on available services. Also, check out the website: eastvalleyazrentals.com
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