Tax Planning
If you rent out all or a portion of your vacation home for less than 15 days, you don’t have to report the income. But expenses associated with the rental won’t be deductible.
If you rent out your vacation home for 15 days or more, you’ll have to report the income. But you also may be entitled to deduct some or all of your rental expenses — such as utilities, repairs, insurance and depreciation. Exactly what you can deduct depends on whether the home is classified as a rental property for tax purposes (based on the amount of personal vs. rental use):
Rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction.
Nonrental property. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. You also can take an itemized deduction for the personal portion of both mortgage interest and property taxes.
In some situations, it may be beneficial to adjust your personal use of a vacation home — or the number of days you rent it out — so that it will be classified in a more beneficial way for tax purposes.