During the summer, many Americans will choose to relocate to their second home. It’s a place to relax and unwind and spend some time regenerating from the demands of everyday life. Understanding the tax breaks available for your vacation home can go a long way to helping you relax in style.
Before you can take advantage of these benefits, we first need to clarify, from a legal standpoint, what a vacation home is. According to the IRS, a vacation home can be any place that provides areas to sleep, cook and is “permanent in place”. Now before you sell your RV, you should know that permanent doesn’t mean immobile so your boat or RV can count as your vacation home.
Furthermore, your vacation home doesn’t have to be located in a tropical or peaceful environment. It can be in a city or in the middle of nowhere. The important factor is how you intend to use the property.
The first option is to own a second home for personal use only. If you and/or your family are the only inhabitants, then you can deduct the same expenses as with your primary residence: property taxes and mortgage interest. You can even deduct home office expenses if you meet the necessary specifications.
Even better, the IRS will even let you rent your vacation home and keep the income that it provides, tax free. Of course, there are a few rules…to maintain personal-use status of your vacation home (and keep your rental income tax free), you must rent your home for 14 days or less. If you rent your home for more than 14 days, then the rules are different.
Now you can opt to designate your vacation home as purely being a rental only. This can be a good way to help pay off your retirement residence. If you rent the home for more than 14 days a year, then you must report the income on your tax return. However, doing so allows you to be eligible for tax breaks in the form of maintenance deductions and costs related to rental expenses. So towels, toilet paper and various furniture can all be deducted due to the fact that it’s a rental.
Designating your home as a rental also allows you to deduct costs of insurance, repairs and housekeeping costs. To maximize your deductions ensure that you treat your vacation home like a business.
Keeping the taxes in order for this can become complicated. Our team of certified public accountants (CPA) can help to limit the stress that is often associated with this. Contact our offices in Joplin, MO and let us know how we can help you.