When it comes to vacation rental income, many homeowners wonder whether or not it is taxable. The short answer is yes – rental income is generally considered taxable by the Internal Revenue Service (IRS). However, there are some important nuances to keep in mind when it comes to reporting this income on your tax return.
What Counts as Vacation Rental Income?
Before we dive into the tax implications of vacation rental income, let’s define what we mean by this term. Vacation rental income refers to any money that you earn from renting out a property that you own, either on a short-term or long-term basis. This could include renting out a spare room in your home on Airbnb or VRBO, or renting out an entire property as a vacation home.
How Is Vacation Rental Income Taxed?
In general, vacation rental income is taxed as ordinary income by the IRS. This means that you will need to report this income on your tax return and pay taxes on it at your marginal tax rate. However, there are some deductions and credits that may be available to help offset this tax liability.
Deductions for Vacation Rental Expenses
One of the key ways that homeowners can reduce their tax liability on vacation rental income is by deducting expenses related to the property. These might include:
- Mortgage interest
- Property taxes
- Insurance premiums
- Repairs and maintenance costs
- Cleaning fees
- Marketing and advertising expenses
- Management fees (if you hire a property manager)
By deducting these expenses from your rental income, you can potentially lower your taxable income and reduce your overall tax liability.
The 14-Day Rule
Another important factor to keep in mind when it comes to vacation rental income is the so-called “14-day rule.” This rule states that if you rent out your property for 14 days or less per year, you do not need to report this income on your tax return. This can be a great option for homeowners who only rent out their property occasionally, and want to avoid the hassle of reporting this income to the IRS.
Conclusion
In summary, vacation rental income is generally considered taxable by the IRS. However, homeowners can take advantage of various deductions and credits to help reduce their tax liability.
Additionally, the 14-day rule provides a useful exception for homeowners who only rent out their property on a limited basis. As always, it’s important to consult with a tax professional to ensure that you are reporting your rental income correctly and taking advantage of all available tax breaks.