How does Earning Rental Income through a Vacation Home affect my Taxes? I want to deduct some expenses against that income.

Question: I’d like to use my vacation home as a potential rental and provide additional income. Currently, we’re looking to rent it for two weeks this year and possibly longer, if things work out well. What are the tax implications for doing this?

Response:  To qualify as a vacation home, the “dwelling” must be some sort of home, albeit a cabin, apartment or even mobile home, that contains the basic living accommodations, such as sleeping quarters, bathrooms, and cooking facilities. And your vacation home can be located almost anywhere—no need for it to be in a special mountain or beach area.

Without getting into the areas of deductions available, the income you produce from renting your vacation home can be tax free if you rent it for 15 days or less. The days that you rent it out do not have to be consecutive; for example, you could rent the home for 7 weekends that total 14 days, or for a week’s span.

However, if you rent it for more than 15 days, your vacation home will  be considered either a property rental or a hobby rental. If it is considered a property rental, you may be allowed to deduct losses. However, if it is a hobby rental, no losses can be deducted. Typically, the difference between being classified as a rental property or hobby rental is the difference in personal usage—the more personal usage done, the more likely it will be a hobby rental. If it is classified as rental property, your personal usage will have to be calculated and separated from the rental deductions and profits.

Answered By Bert Gonzalez

Resource: IRS Publication on Taxation of Vacation Homes

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