Are you a proud owner of a vacation property? Do you know that you can write off certain expenses associated with it on your taxes?
Yes, you read that right! But before you get too excited, let’s dive deeper into the details of what expenses qualify for deductions and which ones don’t.
What is a Vacation Property?
A vacation property is a second home that is primarily used for personal enjoyment and not rented out to others. It can be a house, condo, or any other type of residence located in a desirable vacation destination such as a beachfront or mountain view location.
Expenses You Can Write Off
As per the Internal Revenue Service (IRS) guidelines, you can deduct the following expenses related to your vacation property:
1. Mortgage Interest
You can deduct mortgage interest paid on your vacation home up to $750,000 if it was purchased after December 15th, 2017. If purchased before then, the limit is $1 million. However, it’s important to note that this deduction applies only if the loan is secured by your primary residence and vacation home combined.
2. Property Taxes
You can also deduct property taxes paid on your vacation property as long as they are not more than $10,000 in total when combined with property taxes on your primary residence.
3. Repairs and Maintenance
Expenses incurred for repairs and maintenance of your vacation home are also deductible. These include painting, cleaning services, landscaping, and other similar costs. However, improvements like adding a new room or renovating an existing one do not qualify for deductions.
4. Utilities
You can write off utilities like electricity and water bills if they are directly related to your rental activity and not personal use.
Expenses You Cannot Write Off
Now that we have covered the expenses you can write off let’s take a look at the ones you cannot:
1. Personal Use
Expenses incurred for personal use of your vacation property are not deductible. This includes mortgage payments, property taxes, and repairs and maintenance costs. Rental Losses
If you rent out your vacation property for less than 15 days a year, you don’t have to report the rental income. However, you cannot deduct any rental losses on your tax return. Excessive Rental Days
If you rent out your vacation property for more than 14 days a year, you must report the rental income on your tax return. However, if the rental days exceed the number of personal use days, then you may be able to write off some expenses related to renting it out.
Conclusion
In conclusion, owning a vacation home can be an excellent investment not just in terms of personal enjoyment but also as a tax write-off opportunity. You can deduct mortgage interest, property taxes, repairs and maintenance costs, and certain utility bills associated with renting it out. However, expenses incurred for personal use are not deductible, and neither are rental losses or excessive rental days that exceed personal use days.
It’s always wise to consult with a tax professional before claiming any deductions related to your vacation property to ensure compliance with IRS guidelines and avoid any potential penalties or audits.