If you own a vacation rental property, you may wonder if you can deduct the expenses associated with it on your tax return. The answer is yes, but there are certain rules and limitations that you need to be aware of.
What are vacation rental expenses?
Vacation rental expenses are the costs incurred in owning and operating a property that is used as a rental for short-term stays. These expenses can include mortgage interest, property taxes, insurance premiums, maintenance and repairs, utilities, advertising and marketing costs, property management fees, and cleaning fees.
Rules for deducting vacation rental expenses
To deduct vacation rental expenses on your tax return, you must follow these rules:
- The property must be rented out for at least 14 days during the year.
- You must use the property for personal use for no more than 14 days or 10% of the total number of days it is rented out during the year (whichever is greater).
- You can only deduct expenses that are directly related to renting out the property.
How to calculate your deduction
To calculate your deduction for vacation rental expenses, you need to follow these steps:
- Calculate the total number of days the property was rented out during the year.
- Calculate the total number of days the property was available for rent during the year (including days that it was not actually rented out).
- Calculate the percentage of time that the property was rented out by dividing the number of days rented by the total number of days available for rent.
- Multiply your total vacation rental expenses by this percentage to get your deductible amount.
Example:
Let’s say you own a beach house that was available for rent for 180 days during the year, and it was rented out for 90 days. Your total vacation rental expenses for the year were $20,000.
To calculate your deduction, you would divide 90 by 180 to get a rental percentage of 50%. You would then multiply your total expenses of $20,000 by 50% to arrive at a deductible amount of $10,000.
Special rules for renting to family members
If you rent your vacation property to family members, such as parents or siblings, you must follow additional rules.
- You must charge a fair market rent.
- You cannot deduct a loss on the rental if you rent it to a family member below fair market value.
Conclusion
Deducting vacation rental expenses can provide tax benefits for those who own and operate a short-term rental property. However, it’s important to follow the IRS rules and guidelines carefully to ensure that you are eligible for these deductions. If you have any questions or concerns about deducting vacation rental expenses, consult with a tax professional.