Vacation Rental Tax Tips to Save You Time and Money

Written by Posted On Friday, 29 March 2019 11:10

Tax season can be a headache for vacation property owners, but it doesn’t have to be that way. Learning how to plan ahead can get you through tax season all in one piece, without it becoming overwhelming. If this is your first tax season as a vacation rental owner, this article has what you need to know to get started. And if this isn’t your first rodeo, check out these tips for new ideas, reminders or anything you might have missed.

According to the IRS, when it comes to vacation rentals and taxes, 14 is a number you’ll want to remember. And there’s a bright side and a not-so-bright side to that number.

If you rented out your vacation home for less than 14 days

On the bright side, if you rented out your property for less than 14 days during the past year, you don’t owe Uncle Sam any taxes on the income generated by your vacation home. However, on the not-so-bright side, this means you also don’t get to claim any rental-related deductions.

If you rented out your vacation home for 14 days or more

Renting your home 14 or more days over the past 12 months makes you a landlord in the eyes of the IRS. This means you’ll need to report any rental income you’ve earned, but you’re also eligible to deduct those rental-related expenses.

If you stayed at your vacation home for 14 days or more

If you personally stayed in your vacation home for 14 or more days in the previous year (or 10% of the time you rented it out), you’ll need to divide your expenses between the time you rented out your home and the time you used it for personal use.

Personal use refers to time you or any member of your family stayed in the rental. To make sure you stay on the right side of the IRS, don’t forget that any use by someone paying less than the fair rental price counts as personal use.

However, days spent at your property for business purposes, like performing repairs and renovations, do not count toward the 14-day limit. To be prepared for any future audit or accounting needs, be sure to document your reasons for being at your property.

What vacation rental items are tax deductible?

While we’re talking about documentation and repairs, it’s important to know what repairs are tax deductible so you can document all those expenses, large and small, that can really add up over the year. The key to knowing what is and isn’t tax deductible is understanding the difference between a repair and an improvement. 

This may seem like a minor distinction, but the IRS let’s you deduct the cost of repairs on that year’s taxes while improvements depreciate over time. What’s the difference? A repair is a fix of something that is broken or damaged, like fixing a leaky faucet or patching a hole in the wall.An improvement adds value to the home, like  adding a swimming pool or updating your master suite.

In these instances, recordkeeping is key. Make sure to keep your records of any major renovations or repairs on your home in the past year, like major plumbing updates or new flooring. The IRS rules about depreciations and write-offs can be complicated depending on your situation so we recommend working with a professional to decide the best options based on your specific circumstances.

Another type of deduction includes expenses related to the upkeep and business of renting out your home. Anything from supplies to utilities to housekeeping can be deductible expenses – even HOA (homeowners association) fees. Some of the biggest expenses homeowners forget are legal fees and landlord, homeowner and flood insurance. You can also deduct any expenses you may have incurred throughout the year that relate to maintaining and running your retirement property, like the cost of housecleaning or lawn maintenance.

Do you provide any services and amenities for your guests like breakfast, transportation or cleaning the home while guests are staying there? If so, the IRS could consider you “self-employed” and you’ll need to pay self-employment taxes that fund Social Security and Medicare. If you’re not sure if you fall into this category, talk to your CPA or tax professional for advice.

To make sure you’re not missing anything, keeping flawless records will make your life much less stressful come tax season. To that end, according to Allan J. Rolnick at Tristate Tax Resolution, remember that paying cash for any repairs, improvements or expenses is not a good idea. “The deductibility will be questioned,” Rolnick added.

Consider using one dedicated credit card for everything related to your vacation rental business. This way you’ll know every purchase is business related and you can then categorize each expense appropriately. Another tip to keep tax time stress free is to digitize your paper trail so nothing is lost. Apps like Hubdoc allow you to take a picture of your receipts and email them to yourself and your accountant.

You have a lot on your plate at tax-time, so consider working with a property manager to serve as a resource to take care of tedious tasks you’d rather not worry about.  And if you’re considering working with a property manager, be sure to ask them about their documentation and services around tax collection. For instance, my company, TurnKey Vacation Rentals, has an entire accounting team responsible for providing homeowners with ready-to-file documents and automatically collects taxes from each stay. We also create the 1099’s for any vendor who provides services for your property, like housekeepers or landscapers. Another bonus of hiring a property manager? The fees paid to your manager are a tax deductible expense of running your business! So if vacation rental taxes still seem overwhelming to you, these are just some of the bonuses of working with a reputable property manager.

If you still feel like you need support in filing your taxes, hire a dedicated tax professional or a property manager to help you make sense of the process.

You can also find tips straight from the IRS here. No vacation property rental is the same and filing taxes can be difficult depending on your specific situation. But don’t worry; there are people dedicated to helping you free up your time, save money and become a successful property owner.

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John Banczak

John Banczak is the Co-founder and Executive Chairman of TurnKey Vacation Rentals

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